Health Insurance: Risk Aversion And Adverse Selection Flashcards
Risk Aversion
Maximum amount that we would pay over and above expected loss to avoid the consequences of that lossex. loss is $20,000, but willing to pay $10,000 to avoid possibility
loading fee aka risk premium
dollar amount above average loss; amount willingness and maximum amount to pay to insurance
claim
what is owed
diminishing marginal utility
for every increase in dollar, there is a decrease in usefulness
Adverse Selection
disproportionate share of unhealthy people comprise risk pool; as premiums rise, healthy will decline with lower probabilities of getting sick
Information asymmetry
what consumers know compared to what insurers know will give consumers advantage when looking for health coverage
Factors that Influence Purchase of Health Coverage
-health status-need for future medical care-disposable income
affordable care act
reduce adverse selections concerns for the consumer by eliminating pre-exisiting conditions but adverse selection won't just go away
Employer-Sponsored Health Care
majority of people obtain health care through employers. Less expensive premiums b/c:-favorable selection-employed peopler are healthier
favorable selection
where healthy people select a health plan b/c they know there is a low likelihood of using it
Health Insurance Not Subjected to...
federal/state income tax or SS and medicare payroll taxes
indemnity plans
allow patient to direct own health care and visit almost any provider ; fee for service plans aka PPO or preferred provider network
Health Maintainance Organization Plans
Meet mostly with PCP; transfers to other specialty medicine require PCP's approval
MLR
basic financial measurement used to encourage health plans to provide value to enrollees; ratio of medical claims to premium revenues (80% of premium goes to coverage, 20% for profit); 85% ratio for large group plans
Failure to Meet MLR Standards
Medical loss ratios used to calculate refunds, which are based on the insurers' overall compliance with applicable MRL standards
gross premium
pure premium/(1-loading percentage)
Pauly and Percy 2000 Loading Fee
Loading Percentage about 10% in group coverage, but 50% for non-group coverage
Loading Percentage and Group Coverage
less than 100 workers = 34%100 - 10,000 workers = 15%greater than 10,000 workers = 4%
objective risk
relative variation in actual claims experience from the expected claims experience; risk increases with variance, decreases with size of expected loss, and decreases as risk pool increases
underwriting
setting premiums based on -cause of claims-risk pool number-low vs high utilizers
rate making factors
(1) Community Rating - covered lives in same risk pool; per experience(2) Manual Rating - insured placed in risk pool based on common characteristics; individual(3) Experience Rating - claims experience of entire pool; group experience
Community Rating
premiums typically based on this method along with age/gender consideration and industry classification of group
Experience Rating
Credibility factor: weigh of pool vs group claims experienceRisk borne by insurer
deductible
amount patient pays before insurance starts to pay
co-pay
fixed amount subscriber pays at the time of services
out of pocket
medical costs which the subscriber is responsible for