5. Suppose a government that offers a public health insurance program that covers all essential health...

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5. Suppose a government that offers a public health insurance program that covers all essential health care expenses for citizens (much like Canada's currently existing federal-provincial Medicare pro- gram). Suppose a new government opts to eliminate the public health care program and covert it into a yearly lump sum transfer to all citizens such that the total expenditure on the transfers (which are the same $ value for every citizen) is equal to the total expenditure on health care services before the policy change. Because the transfers are unconditional lump sums they can be spent on either health services or anything else. Assume the cost of essential health care services does not change as a result of the policy (although it almost certainly would!) Let x₁ be expenditure on essential health services and x2 be expenditure on everything else. (a) Draw a graph showing the effect of the policy change and the equivalent variation from the pol- icy change for a 40 year old citizen with no health problems. (b) Draw a graph showing the effect of the policy change and the equivalent variation from the pol- icy change for a 40 year old citizen with Type 2 diabetes. (c) Based on your answers to (a) and (b), explain why eliminating Medicare and replacing it with a budget-neutral set of lump sum transfers would likely be politically unpopular in Canada. 5. Suppose a government that offers a public health insurance program that covers all essential health care expenses for citizens (much like Canada's currently existing federal-provincial Medicare pro- gram). Suppose a new government opts to eliminate the public health care program and covert it into a yearly lump sum transfer to all citizens such that the total expenditure on the transfers (which are the same $ value for every citizen) is equal to the total expenditure on health care services before the policy change. Because the transfers are unconditional lump sums they can be spent on either health services or anything else. Assume the cost of essential health care services does not change as a result of the policy (although it almost certainly would!) Let x₁ be expenditure on essential health services and x2 be expenditure on everything else. (a) Draw a graph showing the effect of the policy change and the equivalent variation from the pol- icy change for a 40 year old citizen with no health problems. (b) Draw a graph showing the effect of the policy change and the equivalent variation from the pol- icy change for a 40 year old citizen with Type 2 diabetes. (c) Based on your answers to (a) and (b), explain why eliminating Medicare and replacing it with a budget-neutral set of lump sum transfers would likely be politically unpopular in Canada.

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a b c Eliminating Medicare and replacing it with a budgetneutral set of lump sum transfers would lik... View the full answer