Session 2 Hour 1 Flashcards

1
Q

Health insurance market in the US is fragmented

A

In the US, there are a variety of third party payers:

  • Government-run: Medicare, Medicaid, CHIP
  • Insurance companies
  • Self-insured plans (employers contract directly with providers, providers provide health care services to employees, employers bear the financial risk)
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2
Q

Each type of third party has its own rules as of:

A
  • What it covers
  • Where the money comes from
  • Population covered
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3
Q

Adverse Selection: Individuals know more about their health status than health insurers

A
  • Sicker individuals are more likely to purchase insurance

- Individuals with higher risk are more likely to purchase insurance (i.e. genetic predisposition to cancer or smokers)

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4
Q

Adverse selection is a problem for insurers:

A

If they combine individuals with dissimilar risk on the pool:

  • Those with lower expected cost (healthier individuals) will get very high premiums and leave for more affordable options
  • High utilizers will have relatively lower premiums, and be attracted to the plan, ultimately increasing costs and leading to losses for the insurer
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5
Q

Adverse Selection: Insurers response

A
  • Insurers response: premium setting based on risk
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6
Q

Moral Hazard (definition)

A
  • Refers to the situations in which the existence of insurance increases the probability of consuming a health service or the amount of the expenses incurred, or both
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7
Q

Moral Hazard (change in behavior, what happens to premium, what is the implication)

A
  • This responds to a rational behavior: individuals consume more if cost is shared with other individuals
  • This excess of use makes the premium rise
  • Implication: introduction of copayment and cost-sharing to reduce overconsumption associated with insurance
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8
Q

Moral hazard also refers to…

A
  • the change in behavior triggered by the issuance of an insurance policy.
  • This increases the probability of a loss or a loss larger than the normal loss
  • The insurer bears the burden of the risks, which in the long-term increases the premium
  • Ex: purchasing life-insurance and going sky diving
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9
Q

Healthcare Market Violations of Ideal Market Conditions

A
  • Third party financing (Insurance)
  • Uncertainty
  • Information asymmetry
  • Principle-agent relationship
  • Lack of price transparency
  • Lack of competition
  • Barriers to entry
  • Externalities
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10
Q

Lack of Competition

A

Highly concentrated markets in:

  • Provision of insurance
  • Health care institutions
  • Health care providers
  • Pharmaceutical manufacturers
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