Find your role and sit at the indicated seat.
Don’t disturb the materials.
Name Role Name Role Name Role
Abdimajid Abdirahman Consumer 1 Coleman Drake Consumer 11 Julia Novitskaia Insurer 1
Adriano Gianturco Gulisano Consumer 1 Colin Keesee Consumer 11 Julio Padilla Insurer 1
Aida Ibricevic Consumer 2 Crane Sorensen Consumer 12 Kareem Khalaf Insurer 2
Alejandro Komai Consumer 2 Daniel Piedra Consumer 12 Kathryn Isaacson Insurer 2
Allen Mendenhall Consumer 3 Daniel Suddes Consumer 13 Lai Xu Insurer 3
Anamaria Boioglu Consumer 3 Daniel Sockwell Consumer 13 Larisa Burakova Insurer 3
Andrew Seremetis Consumer 4 Denis Clijsters Consumer 14 Liliya Leontyeva Insurer 4
Ariel Goldring Consumer 4 Dominic Foppoli Consumer 14 Margaret Gales Insurer 4
Arya Morshed Consumer 5 Dustin Robinson Consumer 15 Theodore Dasher Insurer 5
Babatunde Rosanwo Consumer 5 Eleanor Smith Consumer 15 Mark Yager Insurer 5
Benjamin Eisen Consumer 6 Emilie Maes Consumer 16 David Hendricks Insurer 6
Brandon Peterson Consumer 6 Yashua Bhatti Consumer 16 Michal Kuz Insurer 6
Brian Stacy Consumer 7 Enrique Angulo Consumer 17 Mike Tellier Insurer 7
Bridgette Richey Consumer 7 Eric Sosnoff Consumer 17 Milko Markov Insurer 7
Caitlin McLean Consumer 8 Jens Moens Consumer 18 Nicholas Dunn Insurer 8
Candice Malcolm Consumer 8 Joseph Corey Consumer 19 Oliver Cooper Insurer 8
Carlos Ormachea Consumer 9 Ryan Biese Consumer 19 Patricio Echagüe Insurer 9
Charlotte Rommerskirchen Consumer 9 Joseph Foutch Consumer 20 Philippe Caeymaex Insurer 9
Chris Knudsen Consumer 10 Yashua Bhatti Consumer 20 Rossen Valchev Insurer 10
Claire Litherland Consumer 10 Ryan Lynch Insurer 10
www.antolin-davies.com
The purpose of this simulation is to create a
competitive market and to observe the market as it
achieves equilibrium.
In this simulation, you will experience real market
forces. The same human traits and behaviors that
govern real markets exist in the simulation.
What are artificial are your surroundings. The market
forces are real.
www.antolin-davies.com 2
The Players and the Goals
In this experiment, there are CONSUMERS and INSURERS.
INSURERS sell INSURANCE.
CONSUMERS buy FOOD and INSURANCE.
www.antolin-davies.com 3
Consumers
Each consumer has $20 to spend.
A unit of food costs $1.
The more food the consumer eats, the happier the consumer
becomes.
www.antolin-davies.com 4
Consumers: The Catch
Each consumer faces some risk of badness.
If badness befalls the consumer, the consumer loses all of the
purchased food.
vs.
www.antolin-davies.com 5
Consumers: The Insurance
But, consumers can purchase insurance contracts from the
insurance companies.
Each contract pays the consumer one unit of food if badness
befalls that consumer.
www.antolin-davies.com 6
Consumers: Example
Suppose a consumer can purchase insurance contracts at a
price of $0.50 each (the price of food is always $1 each).
Suppose that the consumer spends $5 on insurance contracts.
The remaining $15 is automatically spent on food.
10 insurance contracts 15 food
www.antolin-davies.com 7
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
www.antolin-davies.com
Accounting Phase
Consumers report:
• Contracts purchased, cost, and from which
insurer(s)
www.antolin-davies.com 40
Consumer Badness
45
1 no
40
2 YES
3 no
35
4 no
5 YES 30
6 no
7 no 25
8 no
20
9 no
10 no 15
11 YES
12 no 10
13 no
5
14 YES
15 YES 0
16 no 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
17 no Consumer #
18 no
19 no Food Purchased Contracts Purchased Food Consumed
20 YES
www.antolin-davies.com 41
Consumer Badness
$80.00
1 no
2 YES $60.00
3 no
4 no
$40.00
5 YES
6 no
7 no $20.00
8 no
9 no $0.00
10 no 1 2 3 4 5 6 7 8 9 10
11 YES
-$20.00
12 no
13 no
14 YES -$40.00
15 YES
16 no -$60.00
17 no Insurer #
18 no
19 no
Revenue Indemnities Profit
20 YES
www.antolin-davies.com 42
Results…
www.antolin-davies.com 43
Insurance Contracts Purchased
120
100
80
60
40
20
0
Type 1 Type 2 Type 3 Type 4 Type 5
Free Ma rket Ma nda ted Ma nda tory
www.antolin-davies.com 44
Insurance Contracts Purchased
800
700
600
500
400
300
200
100
0
Type 1 Type 2 Type 3 Type 4 Type 5
Free Ma rket Ma nda ted Ma nda tory
www.antolin-davies.com 45
Food Purchased
90
80
70
60
50
40
30
20
10
0
Type 1 Type 2 Type 3 Type 4 Type 5
Free Ma rket Ma nda ted Ma nda tory
www.antolin-davies.com 46
Food Purchased
450
400
350
300
250
200
150
100
50
0
Type 1 Type 2 Type 3 Type 4 Type 5
Free Ma rket Ma nda ted Ma nda tory
www.antolin-davies.com 47
Insurance Price per Contract
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
Free Mkt Mandated Mandatory
www.antolin-davies.com 48
Insurance Price per Contract
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
Free Market Mandated Mandatory
www.antolin-davies.com 49
Insurance Profits
$20.00
$10.00
$0.00
Type 1 Type 2 Type 3 Type 4 Type 5
-$10.00
-$20.00
-$30.00
-$40.00
Free Ma rket Ma nda ted Ma nda tory
www.antolin-davies.com 50
Insurance Profits
$100.00
$80.00
$60.00
$40.00
$20.00
$0.00
($20.00) Type 1 Type 2 Type 3 Type 4 Type 5
($40.00)
($60.00)
($80.00)
($100.00)
Free Ma rket Ma nda ted Ma nda tory
www.antolin-davies.com 51
Insurance Contracts Purchased
800
700
600
500
400
300
200
100
0
Type 1 Type 2 Type 3 Type 4 Type 5
Free Ma rket (ful l i nfo) Free Ma rket Ma nda ted Ma nda tory
www.antolin-davies.com 52
Food Purchased
450
400
350
300
250
200
150
100
50
0
Type 1 Type 2 Type 3 Type 4 Type 5
Free Ma rket (ful l i nfo) Free Ma rket Ma nda ted Ma nda tory
www.antolin-davies.com 53
Insurance Price per Contract
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
Free Market (full info) Free Market Mandated Mandatory
www.antolin-davies.com 54
What is the effect of insurance mandates?
• Forces lower risk people to consume
quantities of goods that they may not want
to consume.
• End result is a transfer of wealth from low
risk to high risk people.
• A better solution is simply to tax the low
risk people, give the money to the high risk
people and let them buy what they want.
www.antolin-davies.com 55
But, we have to do something!
Look at what has been happening to the cost
of health care over time!
www.antolin-davies.com 56
400.0
Price of medical care has increased 349% since 1980 versus 135%
for other consumer prices.
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
1981
1983
1984
1986
1989
1991
1993
1994
1996
1998
1999
2001
2003
2004
2006
1980
1982
1985
1987
1990
1992
1995
1997
2000
2002
2005
1988
Price of Medical Care Consumer Prices Excluding Medical Care
Source: Bureau of Labor Statistics (www.economy.com)
www.antolin-davies.com 57
500.0
Hospital services + 576%
450.0
Drugs and supplies + 402%
400.0
Physician services + 282%
350.0
Other consumer prices + 135%
300.0
250.0
200.0
150.0
100.0
50.0
0.0
1981
1983
1984
1986
1989
1991
1993
1994
1996
1998
1999
2001
2003
2004
2006
1980
1982
1985
1987
1990
1992
1995
1997
2000
2002
2005
1988
Price of Physicians Services
Price of Hospital Services
Price of Prescription Drugs and Medical Supplies
Source: Bureau of Labor Statistics (www.economy.com)
www.antolin-davies.com 58
Growth in Prices 1980 - 2006
0%
400%
200%
600%
-800%
-400%
-600%
-200%
www.antolin-davies.com
College Tuition
Medical Care
State/Local Gov't (per-capita)
Source: Bureau of Labor Statistics (www.economy.com)
Federal Gov't (per-capita)
Housing
Food
Gasoline
New Cars
1 GHz of Computing Power
59
But, the cost of health care is only half of
the picture.
What has been happening to the quality of
health care?
www.antolin-davies.com 60
How do we measure the quality of health care?
1. What is “quality?”
2. How do we account for health care that has
become routine but didn’t exist in the past
(e.g., pre-natal care)?
3. How do we weigh qualities across different
types of care (e.g., glasses vs. heart
transplant)?
www.antolin-davies.com 61
How does one measure the quality of health care?
An easy and composite measure of the
effectiveness of health care is the mortality rate.
Some health care may have little or no impact on
the mortality rate (e.g., orthodonture).
But, it is not unreasonable to assume that the
qualities of other types of health care grow at
similar rates.
www.antolin-davies.com 62
10.0
9.5
9.0
8.5
8.0
7.5
1960
1970
1974
1976
1980
1984
1986
1990
1992
1996
1998
2002
2004
1972
1978
1982
1988
1994
2000
2006
Deaths per 1,000 People
Source: Statistical Abstract of the United States, 2008, Table 77.
www.antolin-davies.com 63
30.0
25.0
20.0
15.0
10.0
5.0
0.0
1960
1970
1974
1976
1980
1984
1986
1990
1992
1996
1998
2002
2004
1972
1978
1982
1988
1994
2000
2006
Infant Mortality per 1,000 Live Births
Source: Statistical Abstract of the United States, 2008, Table 77.
www.antolin-davies.com 64
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1962
1964
1968
1970
1972
1976
1978
1982
1984
1990
1992
1996
1998
2002
2004
1960
1966
1974
1980
1986
1988
1994
2000
by Influence and Pneumonia (per 100,000 population)
Deaths by Influenza and Pneumonia (per 100,000 population)
Source: Statistical Abstract of the United States, 2008, Table 110.
www.antolin-davies.com 65
2.9
Millions What does increased cost of health care buy us?
2.7
2.5
2.3
2.1 400,000 lives saved annually
1.9
1.7
1.5
1960
1970
1972
1974
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
1976
1978
1980
1982
2006
Actual Deaths in the Current Year Deaths at the 1960 Mortality Rate
Source: Derived from Statistical Abstract of the United States, and the Bureau of Economic Analysis.
www.antolin-davies.com 66
But, what about the uninsured?
They aren’t sharing in this increased quality of
health care.
www.antolin-davies.com 67
18%
16%
14%
12%
10%
The percentage of the population that is uninsured has remained stable over time.
8%
6%
4%
2%
0%
1987
1988
1989
1991
1993
1994
1995
1996
1998
1999
2000
2001
2003
2005
2006
2007
1990
1992
1997
2002
2004
Source: Income, Poverty, and Health Insurance Coverage in the U.S.: 2006, US Census Bureau.
www.antolin-davies.com 68
35.0%
Percentage of uninsured has remained relatively constant for the young and
the old – the two groups for whom there is the least incentive to tradeoff
30.0% health care for spending on other things.
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1999 2000 2001 2002 2003 2004 2005 2006
Under 18 18 to 24 25 to 34 35 to 44 45 to 54 55 to 64
Source: Income, Poverty, and Health Insurance Coverage in the U.S.: 2006, US Census Bureau.
www.antolin-davies.com 69
6%
Pattern of uninsured is commensurate with the hypothesis that, as the price of
health care rises, the more healthy willingly choose not to be insured.
5%
4%
3%
2%
1%
0%
Under 18 18 to 24 25 to 34 35 to 44 45 to 54 55 to 64
-1%
-2%
Change in % of Uninsured 1999 to 2006
Source: Income, Poverty, and Health Insurance Coverage in the U.S.: 2006, US Census Bureau.
www.antolin-davies.com 70
Voting for the “right” amount of insurance
A free choice to purchase is a vote, but with three important differences.
Political vote: One size fits all.
Free market vote: Multiple sizes for multiple recipients.
Political vote: Speed of change is driven by the election cycle.
Free market vote: Speed of change is driven by the accounting cycle.
Political vote: Signal is distorted because the vote is for a “bundle” of
issues embodied by one candidate.
Free market vote: Signal is clear because the vote is for a specific issue.
www.antolin-davies.com 71