FINAL EXAM Chapter 6 Consumers typically gain from entering into pooling arrangements because the pooling helps reduce the variability of the expected loss Insurance companies often serve as intermediaries and develop and sell pooling arrangements to individuals Loading Fee To the insurer the difference between the total premium and medical benefits paid out or pure premium As the price of insurance declines actual utility increases relative to expected utility and the quantity demanded of health insurance increases Economic theory suggests people purchase more health insurance because of the preferential tax treatment of health insurance premiums Tax exemption effectively serves as a subsidy for the purchase of health insurance Another factor affecting the amount of insurance coverage is the magnitude of the loss relative to income Final factor affecting the amount of health insurance demanded is the degree of risk aversion According to Nyman medical insurance creates value by providing financial access to medical care that people could The Health Insurance Product Traditional versus Managed Care Insurance MCO not afford otherwise o Prior to 1980s Purchased through employers Insurance premiums largely determined by community rating in which the premium is based on the risk characteristics of the entire membership Main difference was the amount of the deductible and copayment Physicians operated in solo practices enrollees dealt directly with individual physicians or local hospitals for care rather than with a network of providers o After 1980s By design they are supposed to emphasize cost effective methods of providing comprehensive services to enrollees Integrated the financing and delivery of medical care Rely to a greater degree on experience rating of enrollees because of the resulting price competition o Health Maintenance Organization HMO Combines the financing and delivery of care into one organization A distinguishing feature of an HMO is that the assigned or chosen primary care provider acts as a gatekeeper and refers the patient for specialty and inpatient care Staff Model physicians are directly employed by the organization on a salary basis completely merges the insurer and provider functions Because medical care is not reimbursed on a fee for service basis physicians have little if any personal financial incentive to overutilize medical services Group Model Provides physician services by contracting with a group practice Normally the group is compensated on a capitation basis Face a strong disincentive to overutilize medical services Network Model Only difference between group and this is the HMO contracts with more than one group practice for physician services Individual Practice Association IPA Model Contracts with a number of independent physicians from various types of practice settings for medical services Physicians generally provide care in a traditional office setting and are normally compensated on a fee for service basis but at a discounted rate o Preferred Provider Organization PPO Exists when a 3rd party payer provides financial incentives to enrollees to acquire health care from a predetermined network of physicians and hospitals Incentive can be in terms of a higher coinsurance or a higher deductible when someone acquires medical care outside the network of health care providers To participate physicians are promised a steady supply of patients GP is not a gatekeeper o Point of Service POS Provides generous coverage when enrollees use in network services and cover out of network services at reduced reimbursement rates Assign each enrollee a primary caregiver who acts as a gatekeeper and authorizes specialty and Financial Incentives and Management Strategies Facing Consumers Patients o Some health insurance plans contain high deductibles and coinsurance as a way of containing medical inpatient care prices o Some plans set their premiums on an experience rated basis as an incentive for subscribers to adopt more o healthy lifestyles Insurers may adopt various management strategies to directly affect the consumer s utilization of medical care Insurer may require prior medical screening to avoid insuring high risk patients or exclude coverage for preexisting conditions Insurer may employ a primary care gatekeeper to determine whether further services are medically warranted Pre authorization Financial Incentives and Management Strategies Facing Health Care Providers o o In terms of financial incentives the health insurance product may adopt different providers reimbursement practices such as fee for service capitation bonuses and or withholds Insurers can also directly influence the delivery of medical care through various management strategies Selective contracting When managed care plans contract solely with an exclusive set of providers Deselection of providers Involves the establishment of the criteria and process by which health care providers will be included in or terminated from the network Physician Profiling May be used to monitor performance in the selection or deselection process Utilization Review Seek to determine whether specific services are medically necessary and whether they are delivered at an appropriate level of intensity and cost Practice Guidelines Provide information to health care providers about the appropriate medical practice in certain situations Formularies Contains a list of pharmaceutical products that physicians must prescribe whenever Consumer Directed Health Care Plans necessary o Prior to the 1980s competition among health care providers such as hospitals was driven largely by the quality concerns of patients who faced very low out of pocket prices Many health economists argue that this patient driven health care helped fuel rising health care prices and expenditures in earlier years o After 1980s payer driven replaced patient driven health care o Consumer driven health care Insurers and policy makers turned their attention to this to control health care costs Higher deductible with the idea that consumers will use medical care more wisely and shop for high value medical care Often combined with health savings accounts HSA or health reimbursement account HRA Both are tax advantaged savings accounts that may be used to pay for qualified medical expenditures HSA owned by employee HRA owned by employer Regulation of MCO s o Supposed to employ cost effective methods of delivering a comprehensive set of services to