Question

Catastrophic injuries and illnesses account for two-thirds of total health care costs in the country of Gnut. The Gnuti government is deciding between two different universal health insurance programs: program X would pay for two-thirds of any health care expense that a Gnuti citizen incurred, while program Y would pay only for catastrophic illnesses and injuries, but would cover 100% of those costs. Which program is likely to better allow Gnuti citizens to smooth consumption

Answer 1

Answer:

In the country of Gnut

The universal health insurance program that is likely to better allow Gnuti citizens to smooth consumption is:

program Y that would pay only for catastrophic illnesses and injuries.

Explanation:

Program Y is a better option for Gnuti citizens to smooth consumption.  The reason is that catastrophic injuries and illnesses already account for two-thirds of the total health care costs in the country.  These injuries and illnesses cost more income variability to the citizens than other health care expenses.  With the government sponsoring program Y, the citizens will be insulated from consumption patterns caused by income variability.  Consumption smoothing creates the needed balance between spending and saving during the different life phases for the citizens of Gnut.