Financing Health Care and Health Insurance

8/9/2019 Financing Health Care and Health Insurance

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HEALTH INSURANCE


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Uncertainty in the market for healthcare :

Timing of health care expenditureAmount of expenditure on health care is

required


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Key Concept in Insurance :

Uncertainty – state in which more than one eventmay occur, but there is no knowledge which oneStates of the world – set of different outcomes

which may result from the condition of creating theuncertaintyProbability – describe the uncertainty. P =0 ; stateof the world will not occur; p = 1 state of the world

will occurPay offs - - outcome which will be obtained ifparticular state of the world is realized


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Contingency matrices : summary table of thepossible pay offs arising from each state of theworld

Table 1. Contingency matrix for 50 year old male

with hypertension and who smokes

State of the world CHD Not CHD

Pay off (lifeexpectancy)

60 70

Probability 1/20 19/20


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Expected value : average of the weight in thepayoff in each state of the world by the probabilityof that state of the world occurring. Ev : [60 x1/20

] + [ 70 x 19/20 ] = 69 ½ years (Average lifeexpectancy)Risk : one which more than one outcome may occur


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ATTITUDES TOWARDS RISK

Risk Aversion – A risk averse individual dislikes riskand uncertainty, and will often pay sums of moneyin order to avoid risky situations.

Risk neutrality – A risk neutral individual neither likeor dislikes risk and uncertainty, but is indifferent to itRisk loving. A risk loving individual likes risk and

uncertainty, and may even pay sums of money inorder to enter into risky situations


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HEALTH INSURANCE

Nature of Health InsuranceRisk PoolingDemand for Health InsuranceSupply for Health Insurance


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Table 2. CONTINGENCY MATRIX WITH AND WITHOUTINSURANCE

State of the World (diseasestate)

Not Ill Ill

Payoff if not Insured W W-C

Payoff if insured W-R W-R

Probability (1-p) p

EV (W) = [px(W-C)] + [(1-p) xW]

EV (W) = [W] – [pxC]


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20,000 (W)15,000(W-C); 20,000-5,000=

InsuranceR= .05x 5000= 250W-R= if not sick ; 20,000-250= 19750If sick : w-r= ; 20,000-250= 19750; 5000;4750+250= 5000


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Rf= .05x 5,000= 250

5,000;1,000,000 iph x 250= 250,000,000

250,000,000- 5,000= 249,995,00050,000 iph x 5,000 = 250,000, 000250 M, invest on real estate ; revenues , eraning

10 years after…

5,000 – 15,000, more than 50 % iph ; nursing tf= 20,000 – 30,0000; 40k


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Fair Premium – insurance premium charge by aninsurance company for health insurance which isequal to the amount of wealth that individual will

lose, on average, if they are not insured.RF = p X CRisk Premium – sum of money which individuals

are prepared to pay over and above the fairpremium so that risk might be reduced.Total Insurance Premium = RF + RR


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Table 3. Contingency Matrix with and Without Insurance for 50year old male with hypertension and who smokes

State of the World(Disease State)

Does not develop CHD Develops CHD

Payoff if not insured 20,000 15,000

Probability 19/20 1/20

P x C = Fair Premium


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Problems of Health Insurance :

Adverse SelectionMoral HazardNon Price CompetitionAffordability of Health Insurance


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FINANCING HEALTH CARE

Direct Out of Pocket PaymentPrivate Health InsurancePreferred Provider OrganizationsHealth Maintenance OrganizationPublic Health InsuranceDirect Taxation


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Related Concepts

Third Party PaymentReimbursing Health Care ProvidersThe effectiveness of methods of financing healthcarePaying insurance premium


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FINANCING HEALTH CARE

Direct out of Pocket – chargemade to the individual who

receives health care fortreatment receivedPrivate Health Insurance – involves an insurance contractbetween private insurancecompanies and individualswho consider themselves to beat risk of ill health

Public Health Insurance – anindividual has the opportunity

to purchase health insurancefrom only one insurancecompany, the governmentDirect Taxation System – derivative of public healthinsurance where the role ofthe insurance company isagain played solely by thegovernment


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HEALTH MAINTENANCE ORGANIZATION : HMO

Health Maintenance Organization . Aform of health insurance combining arange of coverages in a group basis.A group of doctors and othermedical professionals offer carethrough the HMO for a flat monthlyrate with no deductibles . However,only visits to professionals within theHMO network are covered by thepolicy. All visits,prescriptions and

other care must be cleared by theHMO in order to be covered . Aprimary physician within the HMOhandles referrals.

InternationalOrganizations :

AetnaCIGNAKaiser PermanenteHumana

Health NetUniversal AmericanWellpoint

http://www.businessdictionary.com/definition/health.htmlhttp://www.investorwords.com/2917/maintenance.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://www.businessdictionary.com/definition/form.htmlhttp://www.investorwords.com/2289/health_insurance.htmlhttp://www.investorwords.com/4030/range.htmlhttp://www.investorwords.com/1179/coverage.htmlhttp://www.businessdictionary.com/definition/group.htmlhttp://www.businessdictionary.com/definition/professional.htmlhttp://www.investorwords.com/3389/offer.htmlhttp://www.businessdictionary.com/definition/care.htmlhttp://www.investorwords.com/2002/flat.htmlhttp://www.investorwords.com/5752/rate.htmlhttp://www.investorwords.com/1339/deductible.htmlhttp://www.businessdictionary.com/definition/visit.htmlhttp://www.businessdictionary.com/definition/network.htmlhttp://www.investorwords.com/3728/policy.htmlhttp://www.businessdictionary.com/definition/prescription.htmlhttp://www.investorwords.com/3495/order.htmlhttp://www.businessdictionary.com/definition/primary.htmlhttp://c/wiki/Aetnahttp://c/wiki/CIGNAhttp://c/wiki/Kaiser_Permanentehttp://c/wiki/Humanahttp://c/wiki/Health_Nethttp://c/w/index.php?title=Universal_American&action=edit&redlink=1http://c/wiki/Wellpointhttp://c/wiki/Wellpointhttp://c/w/index.php?title=Universal_American&action=edit&redlink=1http://c/wiki/Health_Nethttp://c/wiki/Humanahttp://c/wiki/Kaiser_Permanentehttp://c/wiki/CIGNAhttp://c/wiki/Aetnahttp://www.businessdictionary.com/definition/primary.htmlhttp://www.investorwords.com/3495/order.htmlhttp://www.businessdictionary.com/definition/prescription.htmlhttp://www.investorwords.com/3728/policy.htmlhttp://www.businessdictionary.com/definition/network.htmlhttp://www.businessdictionary.com/definition/visit.htmlhttp://www.investorwords.com/1339/deductible.htmlhttp://www.investorwords.com/5752/rate.htmlhttp://www.investorwords.com/2002/flat.htmlhttp://www.businessdictionary.com/definition/care.htmlhttp://www.investorwords.com/3389/offer.htmlhttp://www.businessdictionary.com/definition/professional.htmlhttp://www.businessdictionary.com/definition/group.htmlhttp://www.investorwords.com/1179/coverage.htmlhttp://www.investorwords.com/4030/range.htmlhttp://www.investorwords.com/2289/health_insurance.htmlhttp://www.businessdictionary.com/definition/form.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://www.investorwords.com/2917/maintenance.htmlhttp://www.businessdictionary.com/definition/health.html


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Types of HMOs

HMOs operate in a variety of forms. Most HMOs today do not fit neatly into oneform; they can have multiple divisions, each operating under a different model, orblend two or more models together.

Staff Model , physicians are salaried and have offices in HMO buildings. Inthis case, physicians are direct employees of the HMOs. This model is anexample of a closed-panel HMO, meaning that contracted physicians mayonly see HMO patients.Group Model , the HMO does not employ the physicians directly, butcontracts with a multi-specialty physician group practice. Individualphysicians are employed by the group practice, rather than by the HMO.The group practice may be established by the HMO and only serve HMOmembers ("captive group model"). Example : Kaiser PermanenteNetwork Model , an HMO will contract with any combination of groups,IPAs, and individual physicians. Since 1990, most HMOs run by managedcare organizations with other lines of business (such as PPO, POS andindemnity) use the network model.

http://c/wiki/Kaiser_Permanentehttp://c/wiki/Preferred_provider_organizationhttp://c/wiki/Point_of_service_planhttp://c/wiki/Point_of_service_planhttp://c/wiki/Preferred_provider_organizationhttp://c/wiki/Kaiser_Permanente


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MEMBERSHIP BENEFITS AND PRIVILEGES

The following no charge hospitalization (In-Patient) services will apply when MEDICARD physicians prescribe the hospitalization ofmembers in any MEDICARD Hospitals or MEDICARD centers:

No deposit upon admission

Room & Board according to type of enrollment

Use of operating theater and Recovery Room

Services of MEDICard specialist like anaesthesiologists, internists, surgeons, etc.Services and medications for general/spinal anaesthesia or other forms of anaesthesia deemed necessary for a surgicalprocedure.

Fresh whole blood transfusions and intravenous fluids

X-ray and Laboratory examinations

Administered medicines

Dressings, plaster casts, sutures and other items directly related to the medical management of the patient

ICU confinements, Chemotherapy, Radiotherapy, and Dialysis are covered subject to maximum limits and pre-existing conditionscoverage

Modern therapeutic modalities and interventional surgical procedures such as, but not limited to laparoscopic surgery andlithotripsy, are covered up to P20,000 each per years subject to the pre-existing conditions coverage

CT Scan, MRI and ultrasound are covered up to P50,000 each per member per year subject to the pre-existing conditionscoverage (inclusive of room and board, operating room charges, professional fees and other incidental expenses relative to theprocedure):

http://www.medicardphils.com/


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Less Paperwork

Fewer ExpensesBroader Coverage

Limited Choice

Affiliation Period

ADVANTAGES DISADVANTAGES


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Essentials in Choosing HMO

The HMO Itself :Contact the Department of Insurance to find out if the HMO is licensed .Contact the Department of Insurance or check the consumer complaint ratios on-line to check the HMO's consumer

complaint record.Ask your friends or family if they belong to the HMO, and whether they are happy with the services and care

provided to them.

The HMO PlanIs it affordable? How do the premiums and copayments compare to other HMOs offering similar benefits?Do the benefits match your needs? Are any services you need not covered?How does the plan treat preexisting medical conditions? (For example, even though an HMO can't exclude a

preexisting condition, it can require a higher copayment.)

The HMO Health Providers

Are the HMO providers familiar to you? Are they conveniently located? Is there a wide choice of physicians,specialists and hospitals?Are the HMO providers accepting new patients?Is your current doctor or specialist with the HMO? If so, is he or she satisfied with the HMO and planning to

continue with the HMO?Is it easy to change Primary Care Physicians?

http://www.midwesthealth.com/html/ratioshmo98.htmhttp://www.midwesthealth.com/html/ratioshmo98.htm


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PPO : Preferred Provider Organization

preferred provider organization (or "PPO",sometimes referred to as a participating providerorganization or preferred provider option ) is a

managed care organization of medical doctors ,hospitals, and other health care providers who havecovenanted with an insurer or a third-partyadministrator to provide health care at reducedrates to the insurer's or administrator's clients.

http://en.wikipedia.org/wiki/Managed_carehttp://en.wikipedia.org/wiki/Medical_doctorhttp://en.wikipedia.org/wiki/Hospitalhttp://en.wikipedia.org/wiki/Health_professionhttp://en.wikipedia.org/wiki/Health_carehttp://en.wikipedia.org/wiki/Health_carehttp://en.wikipedia.org/wiki/Health_professionhttp://en.wikipedia.org/wiki/Hospitalhttp://en.wikipedia.org/wiki/Medical_doctorhttp://en.wikipedia.org/wiki/Managed_care


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PPO : Preferred Provider Organization.

These organizations also have contractual relationshipswith insurance companies. However, PPOs are moreloosely organized and are not as restrictive as HMOs.If you have a PPO, you can see whatever doctor youlike, but if you choose an out-of-network physician, youwill have to pay more out-of-pocket. You will not needa referral to see a specialist.PPOs cost more than HMOs, but many people choosethem because they are less restrictive. You will havemore control over your own healthcare decisions thanyou would have under an HMO.


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Financing Health Care and Health Insurance

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