The basic concept of insurance is population solidarity.[dubious ] There are inherent risks in a population but the population absorbs the cost of risks to an individual by spreading the impact of incurred costs amongst the insured population.[citation needed] However, if the population is split into insured and uninsured groups, or into selectively groups (as with private insurance with pre-insurance selection either by the insurance company or the insured) the concept of population solidarity breaks down. Insurance systems must then typically deal with two inherent challenges: adverse selection and ex-post moral hazard.
Some national systems with compulsory insurance utilize systems such as risk equalization and community rating to overcome these inherent problems.[dubious ] Proponents of single-payer health care in the United States aim to provide the population of the country with health care from a single fund and thus avoid problems and costs associated with adverse selection, moral hazard, and private profiteering[Neutrality disputed — See talk page] from insurance.
Although the general principle of insurance is population solidarity, the economic behavior of insurance companies that are run for profit often seems to go against this very principle.[citation needed] An Urban Institute paper argues that the whole medical insurance industry in the United States is geared to managing two groups that it tries to keep from overlapping: the group of people who are healthy and will make only very small claims as policy holders (which it seeks to attract), and the group of people who will make above average claims (which the companies will do all they can to avoid paying out for — by exclusions, higher co-pay rates, etc). The authors say that these activities are antithetical to the whole concept of insurance (which is that the fortunate healthy should meet the health care costs of the unfortunately ill). The paper argues that American insurers are so focused on the process of managing these groups that they forget that their primary aim ought to be to buy cost-effective, efficiently delivered care on behalf of their clients [13]. On the other hand, insurance companies might argue that they are trying to achieve fairness to policy holders given the fact that the split nature of the market means that risks are not evenly distributed between the various funds.[citation needed]
[edit] Adverse selection
Insurance companies use the term "adverse selection" to describe the tendency for only those who will benefit from insurance to buy it. Specifically when talking about health insurance, unhealthy people are more likely to purchase health insurance because they anticipate large medical bills. On the other side, people who consider themselves to be reasonably healthy may decide that medical insurance is an unnecessary expense; if they see the doctor once a year that's much better than making monthly insurance payments.
The fundamental concept of insurance is that it balances costs across a large, random sample of individuals (see risk pool). For instance, an insurance company has a pool of 1000 randomly selected subscribers, each paying $100 per month. One person becomes very ill while the others stay healthy, allowing the insurance company to use the money paid by the healthy people to pay for the treatment costs of the sick person. However, when the pool is self-selecting rather than random, as is the case with individuals seeking to purchase health insurance directly, adverse selection is a greater concern.[14] A disproportionate share of health care spending is attributable to individuals with high health care costs. In the U.S. the 1% of the population with the highest spending accounted for 27% of aggregate health care spending in 1996. The highest-spending 5% of the population accounted for more than half of all spending. These patterns were stable through the 1970s and 1980s, and some data suggest that they may have been typical of the mid-to-early 20th century as well.[15][16] A few individuals have extremely high medical expenses, in extreme cases totaling a half million dollars or more.[17] Adverse selection could leave an insurance company with primarily sick subscribers and no way to balance out the cost of their medical expenses with a large number of healthy subscribers.
Because of adverse selection, insurance companies employ medical underwriting, using a patient's medical history to screen out those whose pre-existing medical conditions pose too great a risk for the risk pool. Before buying health insurance, a person typically fills out a comprehensive medical history form that asks whether the person smokes, how much the person weighs, whether the person has been treated for any of a long list of diseases and so on. In general, those who present large financial burdens are denied coverage or charged high premiums to compensate.[18] One large U.S. industry survey found that roughly 13 percent of applicants for comprehensive, individually purchased health insurance who went through the medical underwriting in 2004 were denied coverage. Declination rates increased significantly with age, rising from 5 percent for individuals 18 and under to just under a third for individuals aged 60 to 64.[19] Among those who were offered coverage, the study found that 76% received offers at standard premium rates, and 22% were offered higher rates.[20] On the other side, applicants can get discounts if they do not smoke and are healthy.[21]
[edit] Moral hazard
Moral hazard occurs when an insurer and a consumer enter into a contract under symmetric information, but one party takes action, not taken into account in the contract, which changes the value of the insurance. A common example of moral hazard is third-party payment—when the parties involved in making a decision are not responsible for bearing costs arising from the decision. An example is where doctors and insured patients agree to extra tests which may or may not be necessary. Doctors benefit by avoiding possible malpractice suits, and patients benefit by gaining increased certainty of their medical condition. The cost of these extra tests is borne by the insurance company, which may have had little say in the decision. Co-payments, deductibles, and less generous insurance for services with more elastic demand attempt to combat moral hazard, as they hold the consumer responsible.
0 comments:
Post a Comment