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Expected income without any insurance coverage

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Reference no: EM131779128

Paul is currently unemployed and without health insurance coverage. Paul presently makes about $40,000 of interest income per year. He realizes that there is about a 5 percent probability that he may suffer a heart attack. The cost of treatment will be about $20,000 if a heart attack occurs.

  1. Calculate Paul's expected income without any insurance coverage.
  2. Suppose now that the government passes a law that allows all people not just the self-employed or employed to have their entire insurance premium exempted from taxes. Tax rate is equal to 40%. Would he buy health insurance? Why or why not? What implications can be drawn from the analysis?

Reference no: EM131779128

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