Currently, the U.S. government offers food stamps to poor Americans. These stamps are pieces of paper that
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Let’s suppose that instead, the government decides to pay 95% of every poor person’s food bill, as long as it is purchased at a typical grocery store: The poor person would make a “copayment” of 5% of the total bill, and the federal government would reimburse the grocery store for the remaining 95%. Just to keep things simple, let’s assume that the government has a good way to make sure that poor people can’t resell this food to others.
a. Which method would probably lead to more spending on food: the current method or the 5% copayment method? Why?
b. If food companies like Kellogg’s and Quaker Oats start inventing new, more delicious dishes at a rapid rate, under which method will the federal government’s food spending grow fastest: the current method or the 5% copayment method?
c. Which method is more like how most people pay for health care including the elderly and the poor under the federal government’s Medicare and Medicaid programs: the current method or the 5% copayment method?
d. Recall that health care is a field of rapid innovation. How can your answer to part b and c explain the rapid growth of medical spending?
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