Question

LU 12 MARKET FOR HEALTHCARE

1.How does the system of third party payments through health insurance affect the market for health care?

2. What is moral hazard of health insurance?

3. How would the market for health care be affected if the federal government required all health insurance companies to increase their coinsurance rates from current levels by 50 percent?

Answer 1

1. A third part payer in context of a healthcare system implies anyone who pays for the medical services of the patients other than the patient himself. All of these third-party payers will cover a portion of what the patient owes for his medical services, and each type of payer has its own set of conditions that must be met by the clinician or facility providing the services in order for it to get paid.

The presence of third party payer affects the market for healthcare services by driving up the cost of care.The patient seeks medical care whenever he needs it and the healthcare provider provides these services and charges the fee. When the patient is insured by a third party payer, the insurance company pays it. But what the provider charged and what the insurance company pays, the patient might never really know or think about. So the patient doesn't seek his care at the lowest possible cost or the greatest value. There's no supply-and-demand at play, and the costs just spiral upward.

2. When a person is insured through health insurance through a third party payer, the patient's liability of paying for healthcare expenditure reduces. This induces the problem of moral hazard. Moral hazard in context of health insurance means that a person purchases aditional care when he is insured. These aditional health purchases are regarded as inefficient because the additional care is worth less to patients than it costs to produce. Hence, this induces the problem of moral hazard as those who are insured seek to purchase additional health care services than it is required.

3. Coinsurance is a portion of the medical cost you pay after your deductible has been met. Coinsurance is a way of saying that you and your insurance carrier each pay a share of eligible costs that add up to 100 percent.

If the health insurance companies increase their coinsurance rate by 50% then the share of medical expenses which a patient is expected to pay rises. This results in a reductio in the problem of moral hazard and a more efficient way to utilize the healthcare resources because now the patients will reduce on the additional medical facilities which are not required, which will lead to a fall in the prices of medical services and the insurance premium as well.