Information & Managed Care Flashcards
What Are The Two Most Common Problems Caused by Insurance?
- Moral Hazard
2. Adverse Selection
Adverse Selection
A phenomenon in which insurances will attract patients who will more than likely use their services at a higher rate that results in asymmetric information because potential beneficiaries will have better understanding of their health status and their expected demand of care.
The Lemon Principle
Introduced by Nobel Laureate George Akerlof (1970) that compared the idea of asymmetric information (adverse selection) through analysis of the used-car market; basically the bad (quality) drives out the good (quality) through the use of “lemons” until no market is left. Due to lower prices on the “used cars” causing increase in demand driving out the top quality cars by the “lemons” (people?).
Applying Lemon Principle in Health Care…
When people enter the market, the ones with the higher health risks are pushing those with lower health risks out of the market and driving them away causing the market to be less functional and risky.
How Lower Risk and Higher Risk People Are Affected By Adverse Selection
- Lower risk face an unfavorable rate of premium and will tend to underinsure. They will sustain a welfare loss by not purchasing insurance at appropriate rates.
- Higher risk will face a favorable premium and therefore over-insure causing risks that they would not otherwise insure against.
* Both are inefficient.
Principal Agent Problem
- Occurs when the patient (principal) hires a provider (agent) to decide how much service is needed based on health status.
- The perfect agents acts in accordance with the principals “best interests” and considers their preferences and tastes in consideration.
- The problem is not knowing if the agent is acting in best interest of the principal and then interests diverge causing conflict of interest.
Fee For Service (FFS)
- Provider provides health care and advises the consumer on how much is needed.
- Due to lack of information with combined FFS, would provide incentives to over-consume in the healthcare market.
- Goal: Try to transfer from over to under consumption by controlling behavior of provider while using cost control incentives by HMO.
What is Managed Care…
Concept that explains how through HMO’s, people will pay a certain premium in order to receive services within that network of premiums at a lower price. It is a arrangement between the provider and the insurance network. This will control people to shop everywhere and control their costs.
Goal of Managed Care…
Through a more centralized management of services, the goal is to provide additional quality enhancing features for a given price or to provide a given set of quality attributes or outcomes for a lower price.
Gatekeeper
In managed care, it is the primary care doctor who will approves the further or more expensive services.
Health Maintenance Organization (HMO’s)
Providing relatively comprehensive health care (with few out of pocket expenses) by requiring that all care be delivered through the plan’s network and that the PCP authorizes any services provided.
Preferred Provider Organizations (PPO)
Provides two tier of coverage; the required cost sharing of deductibles and coinsurance is lower within the network. However, no gatekeeper is needed to obtain some services.
Point of Service Plans (POS)
A hybrid of PPO and HMO where there are two tiers of coverage where coinsurance, deductibles, and out of pocket expenses are lower if patients stay within the network. However, there is a gatekeeper who must authorize certain care in order for the care to be covered within the network.
Under HMO and PPO, how does a provider’s practice make profit?
They make profit when the insurance plan pays a fixed fee (capitation); if care provided costs less than the fixed dollar plan payment, the practices makes a profit.
3 ways Managed Care Differs from FFS…
- Dumping
- Creaming
- Skimping
