The current government-provided system in the country of Puceland provides free health insurance for all children but to no adults. There are two types of adults in Puceland: high earners and low earners. All of the 100,000 high earners receive insurance coverage through their employer, but only half of the 100,000 low earners do. The remaining adults are uninsured.

You are hired to analyze the effectiveness of a proposed plan to offer coverage to all low earners. You have read the economics literature in Puceland and your best estimates are as follows: (1) only 80% of uninsured workers who are offered government health insurance will choose to enroll; (2) 60% of currently insured low earners work at firms who will drop insurance coverage for them after the policy change, and the other 40% will remain in their current employer-provided plan; (3) 10% of high earners will choose to become low earners (at firms who do not offer health insurance) and take up the government insurance once they can get it.

a. Estimate the increase in the number of insured adults.

b. Estimate the dollar cost per additionally insured adult. Why is it so much higher than $5,000?

c. Suppose that, without access to any insurance, each adult has a 5% chance of dying in a given year. Access to government-provided health insurance reduces this to 3%, while access to employer-provided health insurance reduces it to 2%. If it costs the government $5,000 to provide health insurance per year to an adult, estimate the dollar cost of the program per life saved.