ECON 170 Midterm 2 Flashcards
What program is no longer being marketed for changing prices or demands for individuals?
Medicare
For short or long periods of time Medicare can be ____ (over or underfunded)
Underfunded
In a competitive market that causes changes in prices and reactivity for Medicare the _________ gets lost
Price stabilizing mechanism
What are the parts of health insurance?
Insurance product, prepaid health benefit, promise of insurability in the future, and negotiated rates and access
What is the purpose of an insurance product?
Prevents people from being afraid to seek care because of financially catastrophic outcomes due a lack of health insurance
Price wise: what does the insurance product equal to financially?
The expected payout of insurance (medical care) costs
What is a prepaid health benefit?
Payments that are made by individuals and businesses to their insurers in advance for insurance services or coverage
What predisposes us to wanting a prepaid health benefit?
Tax subsidy
What has become less relevant in the presence of the ACA and why?
The promise of insurability in the future because the ACA says that if you want health insurance you can gain access to it and can no longer be permanently uninsured
What healthcare plan has a lifetime limit on benefits?
Medicare
What are deductibles?
Amount you spend at negotiated rate for services covered by your health insurance
What is a copay?
A fixed amount out of pocket payment you pay for a covered health care service after you’ve paid your deductible
What is co-insurance?
An insured individual’s share of the costs of a covered expense.
If you have a “30% coinsurance” policy, it means that, when you have a medical bill, you are responsible for 30% of it.
What do copays and co-insurance have in common?
They are both types of cost-sharing
If your coinsurance is 20% and the total cost of a service is $100, how much would pay vs your employer?
You: $20
Employer:$80
What is the difference between copays and co-insurance?
Copays are fixed amounts typically used for more routine services, while coinsurance varies and is more commonly used for larger, more expensive services such as surgery or hospitalization.
Out of pocket sharing maximums are built into the _____________
ACA
What does out of pocket sharing maximums mean?
If you spent a certain amount on IRS covered items then insurance can’t charge you more than that
What is balance billing?
A provider bills you for the difference between the provider’s charge and the allowed amount. It happens when someone seeks care at an in-network facility or provider but receives services that are out of network without prior knowledge or consent.
If the charge is 200, negotaiated rate is 100, co insurance is 20% (applied to 100), how much do I pay, how much does insurance pay and what is the balance bill?
Me: 20
Insurance:80
Balance bill:100
Why is balance billing prohibited?
Medicare providers (like doctors and hospitals) cannot bill dual eligible beneficiaries for Medicare cost sharing. This means dual eligible beneficiaries cannot be charged for co-pays, co-insurance, or deductibles.
What is balance billing also known as?
Surprise medical billing
What is the cost of health insurance dependent on?
Who’s covered: age, gender health
What’s covered: benefits, cost sharing/deductible, terms, pre-existing conditions
Insurer profits: administration
Subsidies: premium, reinsurance
Underlying health care costs, inflation
What is moral hazard when it comes to health insurance?
When one party is full insured and cannot be accurately monitored by an insurance company with limited information, its behavior may change after the insurance has been purchased
Moral hazard is a _______________________
Distortion of demand and supply side interventions
What is demand side insurance?
Demand for goods and services drives economic growth
What is supply side insurance?
People can prevent you from gaining access to a good (limiting number of physicians you can see), so they’re not even going to offer it to you. They can simply say no.
How to reduce moral hazard?
Limit the insurance coverage to less than 100%, high deductibles because it makes consumer feel like they’re spending their own money instead of insurance’s money, reduce co-insurance on vaccinations and preventative benefits
What is an unfavorable behavior that moral hazard encourages?
Overutilization
Explain the RAND health insurance experiment
Randomized patients with different copay charges in HMOs and PPOs to see how they act differently (testing moral hazard)
Findings of the RAND experiment
inpatient and outpatient are complimentary not substitutes, inappropriate use of low value healthcare remains constant, reduced spending resulted entirely from less use of care (the costs of care were not affected), cost sharing reduced the use of effective and less effective services about equally
In the RAND experiment what faced the harshest effects?
Mental healthcare service use because they are very dependent on copays
How is health insurance different than other forms of insurance?
Expected pay out DOES NOT EQUAL value
Many Americans get their health insurance through their employers, not on their own. As a result, a lot of people don’t really know how much they’re paying for it, and thus, don’t know how much their health care really costs.
Explain the importance of value in health insurance.
Value takes explicit account of risk aversion. In current situation healthy person may logically choose to NOT buy health insurance in individual market because the cost FAR exceeds the expected payout
In presence of great risk aversion (and reasonable understanding that even very healthy have health risks), adverse selection might be decreased
What is the impact of tax exemption on distortion of the market?
Poor tax design creates inefficiency and unfairness but it is possible to correct the flaws. It is bad because the government is subsidizing health insurance when purchased by your employer. This encourages you to get a policy that encourages you to overconsume health care because there are low deductibles which is good short term, but adds up over time.
Define medical loss ratio (80/20 rule)
Requires insurance companies to spend at least 80% of the money they take in from premiums on health care costs and quality improvement activities. The other 20% can go to administrative, overhead, and marketing costs.
What does the government do when health insurance is purchased by your employer?
Subsidizes it
How does the government determine how much their subsidy is?
Subsidy = marginal tax rate * cost of insurance
What is the relationship between marginal tax rates and employers with high benefits?
Higher marginal tax rates and/or higher employer provide benefit yield higher gov (federal, primarily) subsidy
What was the problem with government subsidies?
Because of the equation (Subsidy = marginal tax rate * cost of insurance) it applied more to richer people than poorer people because they had higher tax rates exacerbating inequality
On the supply side with provider monopoly power what is higher than in the perfectly competitive market?
Fees
What two consumer directed health plans usually come in partnership?
High deductible health insurance product (HDHP) and the healthcare savings account (HSA)
Characteristics of high deductible health insurance product (HDHP)
Often includes a higher degree of information for clinicians and beneficiaries to make informed decisions, and may include variable copays based on need, efficiency of provider and quality of provider
What is value based care?
A term that Medicare, doctors and other health care professionals sometimes use to describe health care that is designed to focus on quality of care, provider performance and the patient experience. The “value” in value-based care refers to what an individual values most.
What is fee for service care?
Providers are reimbursed based on the quantity of services delivered that emphasizes service volume
What is a key component of value based care?
Putting greater emphasis on integrated care, meaning health care providers work together to address a person’s physical, mental, behavioral and social needs. In this way, providers treat an individual as a whole person, rather than focusing on a specific health issue or disease.
HDHP (high deductible health plans) are also known as ___________
Consumer directed health plans
What is a flexible spending account (FSA)?
Special account you put money into that you use to pay for certain out-of-pocket health care costs.
You don’t pay taxes on this money. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside.
What can your FSA be used to pay for?
Deductibles and copays but not insurance premiums
What does your HSA (health savings account) allow you to do?
Set aside money on a pre-tax basis to pay some health expenses if you have a high-deductible
Key difference between HSA and HRA
HSA funded by both employee and employer while only the employer funds an HRA. You can pull money from your HSA to pay for medical costs, HRAs require you to pay upfront and then get reimbursed.
FSA characteristics
DO NOT carry over each year but still owned by employer, not intended for retirement savings, less popular now that HSAs are more broadly available
For most people health care spending is not tax deductible unless _________
Your employer is buying it for you
Downside of FSA
If you don’t use it you lose it
What is the FSA a part of and how does it work?
ERISA plan (pre-empts state law) and money is moved from your salary into your employers benefit account and its no longer yours. You have to use it in the year you allocate it so if you quit, are fired, or don’t spend it you lose the money.
Characteristics of HSA
Rolls over, owned by you, can grow tax free, can be invested in assets, inheritable
Characteristics of HRA
Rolls over BUT not owned by you
HDHP will not provide ______ until the deductible is satisfied
Benefits for any year
Who are HDHPs good for?
Young people because more healthcare expenses are paid by the individual and young people don’t go to the doctor or hospital as often
HSAs can be used for anything the IRS says is _____
Tax deductible
Ownership status and roll over status of FSA, HRA, AND HSA
FSA: owned employer and doesn’t roll over
HRA: owned by employer and rolls over
HSA: owned by you and does roll over
What do FSA, HSA, and HRA have in common?
All 3 are efforts to avoid taxation of health insurance and captures subsidy without having to buy a high moral hazard plan.
Why is Medicare important?
It is a trillion dollar program in terms of overall spending every year that sets precedent for all healthcare policy
