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total cost of providing this insured service to the plan before and after the change in coverage

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Q. The services of a certified psychologist cost $110 per hour, and an extended health plan covers 50% of that cost. Under the plan, the clients covered used 625 hours of this service in a typical 3 month period. To save money, the extended health plan reduced its coverage to 40% of the cost. As a result, the clients covered reduced their use of this service to 482 hours in a typical 3 month period.

a) Calculate the total cost of providing this insured service to the plan before and after the change in coverage.

b) Based on the data above, calculate the elasticity of demand for the services of a certified psychologist. Interpret the elasticity of demand, and explain the behavior of the clients covered based upon this interpretation.

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Solution Summary

This tutorial advises how to interpret the elasticity of demand and further assesses the behavior of the clients covered based upon this interpretation.

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Q. The services of a certified psychologist cost $110 per hour, and an extended health plan covers 50% of that cost. Under the plan, the clients covered used 625 hours of this service in a typical 3 month period. To save money, the extended health plan reduced its coverage to 40% of the cost. As a result, ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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