Health Insurance Plans: Pricing, Moral Hazard, and Managed Care

Flashcards covering health insurance plan pricing, the concept of moral hazard and its amelioration, managed care strategies, and the different types of health insurance plans discussed in the lecture.

What is the primary benefit of health insurance?

Protecting people from the financial risk associated with hard-to-predict, low-probability, expensive medical conditions, and providing access to treatment they couldn’t otherwise afford.

What is 'risk aversion' in the context of health insurance?

Most people prefer to make a relatively small but certain payment (the health insurance premium) in exchange for avoiding the chance of a large financial loss due to unexpected medical costs.

Explain the concept of 'spreading risk' in health insurance.

Insurance shifts financial risk from an individual to the group by pooling resources among all enrollees, where losses are shared by all members of the group.

What is 'experience rating' for health insurance premiums?

Premiums are based on a person’s previous medical costs or their predicted costs based on age, gender, health conditions, or health behaviors, leading to different premiums for different people.

What is 'community rating' for health insurance premiums?

The premium is the same for all people regardless of age, gender, smoking status, or health conditions, meaning healthy people subsidize sicker people for equity.

How are health insurance premiums typically set for most non-elderly Americans through their employer?

Employers are experience-rated (higher premiums for sicker workforces), but within a firm, employees are community-rated, meaning young, healthy workers subsidize older/sicker workers.

What is 'moral hazard' in health care?

Moral hazard exists when insured individuals behave differently than if they were uninsured, such as demanding more medical care once it's 'free' (to them) or choosing more expensive treatments.

Why is moral hazard considered a problem in health care?

It can lead to inefficient care, where patients sometimes decide to receive medical care when the value of that care is less than its actual cost, because they pay little or none of the price.

Name four common types of patient cost-sharing mechanisms used to reduce moral hazard.

Deductible, Co-payment, Co-insurance, and Out-of-pocket maximum.

What does the 'Medical Care Ratio (MCR)', also known as 'Medical Loss Ratio (MLR)', represent for health insurers?

It's the ratio of enrollees’ medical expenses paid by an insurer to the premium revenue received, indicating how much of the premium goes towards medical care versus administrative costs/profit.

What are the four key decisions health insurers make to manage/reduce their Medical Care Ratio (MCR)?

Determine which providers to include in their network, determine how and how much to pay providers, 'manage' the medical care provided to minimize low-value care, and set cost-sharing rules for patients.

What is the difference between 'fee-for-service (FFS)' and 'capitation' payment models for physicians?

FFS involves the insurer paying the MD an agreed-upon fee for each medical service provided, while capitation involves the MD receiving a fixed dollar amount per enrollee per month, regardless of how often the enrollee visits.

List some tactics health plans use to reduce low-value medical services (utilization management).

Requiring a primary care physician gatekeeper, prior authorization for referrals/prescriptions, pre-certification for hospital admission, step therapy for drugs, and requiring generic instead of brand-name drugs.

Differentiate between an HMO, POS, and PPO plan.

HMOs have the smallest networks, no out-of-network coverage (except emergencies), and aggressive utilization management. POS plans are like HMOs but with some out-of-network coverage. PPOs have the broadest networks, the smallest penalties for going out-of-network, and the least aggressive utilization management.

What are some negative health effects associated with increasing patient cost-sharing?

Patients may make poor medical choices, ration necessary care, and reduce the use of high-value drugs, which can negatively affect their health and increase mortality rates.