1What do people usually define insurance as?
the organization that pays for medical care
2What is the primary purpose of insurance?
reduce financial risk of illness
3On average, people pay for the cost of their illness through what?
premiums
4Insurance helps reduce variations in...
premium payments
5In general, do people like risk?
no
6Are people willing to pay to get rid of risk?
yes
7What does purchasing insurance involve?
incurring a small certain loss (premium) in exchange for avoiding the possibility of a large loss
8Insurance trades...
uncertainty for certainty
9Insurance reduces...and shares...
worry; risk
10What declines with increasing size of risk pool?
variability in health care costs
11Illness is...
-highly variable for an individual
-relatively predictable for a group
12Illness rate for a group tend to converge to its...as group size increases
expected (average) value
13If everyone pays for own medical care, what else do they pay for/face?
-pay for cost of care if ill
-face risk of illness
14What happens if people buy insurance?
-must still pay expected cost of care
-risk is pooled across individuals
-pay insurance companies to take our risk
-Insurance company faces little risk
15What are two types of risk?
-speculative
-pure
16Speculative risk
-not insurable
-can result in an uncertain degree of gain or loss
-ex: gambling, new business venture, stock market
17Pure risk
-most are insurable (chance)
-possibility of loss or no occurrence of loss
-unlikely to experience any gain
-ex: property damage from fire, flood, storm, auto accident, lost assists due to theft, disability insurance
18Insurance is designed to reduce...
pure risk
19Who pays for insurance?
-you do
-but most employees believe that "somebody else" is covering these costs
20T/F? Moral hazard is a problem with health insurance.
true
21Moral hazard
any change in individual behavior due to insurance which increases expected losses, such as higher utilization of covered services
22What is a solution for moral hazard?
to decrease unnecessary demand involve cost-sharing
23What are part of the solution for moral hazard?
deductibles, co-payments, coinsurance, coverage limitations
24Deductibles
\$ amount the insured/patient must first pay before any benefits by the plan are payable (annual--\$500 most plans)
25Co-payments
cost sharing in the form of a fixed \$ amount for every unit of health care consumed
26Coinsurance
like copays, patient must pay a portion of the cost but unlike copays, forces the patient to pay a portion of every dollar spent
27Coinsurance is...in the form of a %
cost sharing
28What are two examples of coinsurance?
-allergy testing
-ER visit
29T/F? Adverse selection is a problem with health insurance.
true
30Adverse selection
when individuals or companies purchase insurance because they expect a loss
31Asymmetry of information
one party (buyer) has more info than the other party--disproportionate share of bad risk
32What are solutions to adverse selection?
-restrictions on benefits
-charging different out-of-pocket premiums for different plans
-enroll large groups
33Restriction benefits on health insurance
-pre-existing condition clauses
-clauses that eliminate payment for certain conditions/cancelled policies for high risk patients
34Enrolling large groups in insurance...
-encourages large risk pool
-tax breaks, subsides from employer
35T/F? Health care provider incentives are problems with health insurance
true
36Health care provider incentives
economic incentive to provide more "care" than less
37What are solutions to health care provider incentives?
-anti-kickback laws
-managed care
-maximum allowable costs (MAC)
38Anti-kickback laws
payment for referrals are illegal
39Managed care
various methods to control costs and utilization (ex: generic vs branded drugs)
40Maximum Allowable Costs (MAC)
upper limit is set on the price of goods and services that will be reimbursed by insurer
41Moral hazard is a patient spending more money than needed, and the solutions to this are...
-various ways to make enrollees/patients pay
-cost sharing
42Adverse selection consists of asymmetry of information and consumer buying insurance because expect a loss, and the solutions to this are...
ways to prevent people only getting insurance when needed including precondition clauses and higher premiums for greater services
43Health care provider incentives are when providers get more money for providing more care, and the solutions to this are...
ways to prevent provider to not provide more care than needed including DRGs (Medicare) and capitation (managed care)
44Diagnosis related groups (DRG)
healthcare provider receives fixed \$ payment per patient independent of quantity of care provided based on diagnostic grouping
45Capitation
provider is being paid a fixed amount to provide health care to a pool of enrollees independent of how much care is provided