Whole Foods provides its workers with

1. As described in one of the slides, Whole Foods provides its workers with a health plan with a deductible of about $2500, and also contributes $1800 per year to a worker’s “Personal Wellness Account,” which can be used to pay out-of-pocket costs (these are old numbers, they have probably changed by now). If the deductible is supposed to make the worker more conscious of costs when consuming health care, why doesn’t the Wellness Account contribution defeat much of the purpose of the deductible? Under some arrangements, accounts like this belong to the worker, even if the worker leaves the job. Under other arrangements, the account disappears when the worker leaves. Does which type of account is used make a difference for the worker’s incentives about using the Wellness Account? Discuss.
2. Suppose you are buying insurance as a 25-year-old single non-smoker (men) in the marketplace (insurance exchange). Use this website for your information: https://www.healthcare.gov/see-plans/
Assume that you are from Wayne County, MI. You can use the zipcode 48205 (which is where I grew up), and you don’t need to enter information about income and can say “not now” when it asks “Do you want an estimate of your total yearly costs?”
a. What is the second lowest silver plan available to you, and what is its unsubsidized annual premium? (The website gives you monthly premiums, so you have to multiply by 12.)
b. What is the lowest premium plan with a deductible no higher than $1,000, and what is its unsubsidized annual premium?
c. Now suppose your income for the year is $17,655 (150% of poverty). At this income level you are expected to pay 4% of your income if you buy the second lowest silver plan. Whatwould be the annual premium that you would pay after subsidy?
d. What annual premium would you pay, after subsidy, if you chose the plan from part b? Explain how you calculated it.
e. Suppose you have a chance to get a better job and raise your income to $29,245 (250% of poverty). At that income level you would be expected to pay 8.05% of your income toward the premium for the second lowest silver plan. What is the implicit tax rate you would pay on the additional income as a result of a reduction in the subsidy? Explain.

Although you don’t need it to answer this question, you might also find this website interesting

Health Insurance Marketplace Calculator

Additional ungraded questions.

1. Suppose Mr. Jones is paying his workers $300 a month with no health insurance (Scenario 1). He offers as an alternative $200 a month wages plus health insurance that costs him $100 (Scenario 2). Mr. Jones is indifferent between the two since they cost him the same total amount, and as far as he is concerned they are the same for tax purposes.
How an employee views these two alternatives depends on the tax treatment of health insurance. In the current situation, the employee pays taxes on wages but not on health insurance provided by the employer. Suppose the tax rate is 1/3. Fill in the following table. If health insurance is taxed just like wages, the employee pays tax on $300 in both Scenario 1 and Scenario 2.
Current tax treatment of health insurance
Scenario 1 Scenario 2
After-tax wages
Health insurance No Yes
Health insurance taxed just like wages
Scenario 1 Scenario 2
After-tax wages
Health insurance No Yeas
After you have filled in the table, answer the following: Under the current tax treatment of health insurance, how much does the worker need to value health insurance (in dollars) in order to choose Scenario 2 over Scenario 1?

2. Consider two different consumer-directed health plans. One has a $5000 deductible, with the insurance paying for all care after the deductible has been met. The other has a $2000 deductible, a 10% coinsurance rate after the deductible is met, and a “stop-loss” (maximum out-of-pocket payment) of $5000. Discuss the differences between these two plans. Which one subjects the consumer to more risk? How do they differ in their effects on consumer incentives to use care, over different possible ranges of spending?

3. (Difficult) This question is about risk adjustment in an insurance exchange.
a. Consider an example like the one discussed in class (Dec 8) except that expected costs by health plan and risk type are as in the table below. Assume equal numbers of each risk type. Everyone is required to buy insurance, and each health plan has to charge the same premium to all risk types. What would the taxes and subsidies charged to insurers for taking on different risk types need to be in order that (i) total taxes collected would just cover total subsidies paid, and (ii) no insurer would have an incentive to seek out the healthy and avoid the sick? Explain. Hint: there might need to be a tax or subsidy for every risk type. Note: the tax or subsidy for a risk type must be the same for every insurer.
Risk types ? Low Middle High
PPO $120 $200 $310
IPA-HMO $80 $160 $270
Staff HMO $50 $130 $240

b. Now suppose expected costs look like the table below (it’s just like in class except that the expected costs for the high risks are particularly high in the PPO plan). Explain why it won’t be possible to set taxes and subsidies to achieve goals (i) and (ii) from part a at the same time.
Risk types ? Low Middle High
PPO $120 $200 $310
IPA-HMO $80 $160 $240
Staff HMO $50 $130 $210

c. Sticking with this example from part b, suppose there is a tax of $80 for signing up a low risk and a subsidy of $80 for signing up a high risk (no tax or subsidy for signing up a middle risk). Will goal (i) be achieved? What special concern will the PPO have in choosing its premium?