Question

Answer the following:

a. How does an insurance pool work to spread risk? To what extent does this help address problems with moral hazard?

b. Describe the strategies used by managed care plans to control costs. Explain the economic logic of how each works.

c. In what way is the general structure of managed care like the risk-sharing aspect of insurance?

Thanks!!

Answer 1

a. The insurance pool is an aid that helps to manage the risk over the insurance companies. It is more sort of risk management tactics used by the insurance companies to diversify the high amount of risk. This can be understood by an example: suppose a person in having a critical heart disease so the cost of medical expenditure of this person will be very high and the insurance company has to bear the same as the person has taken health insurance. But a person who is healthy will not have any kind of medical expense but both the person is paying the same premium to the insurance company as they are of somewhat similar age. So, if the people are put in the same pool then the insurance company will get the premiums to form both and had to pay to only one who is ill. Also if young and the old people are grouped together then also the risk will be spread as the younger people generally do not require claims into their policies and the older people claim can be settled through the pooled premiums. In this way, the insurance company can spread the risk involved and risk management will be practiced by the company.

This helps the insurance companies to address the moral hazards as there is very little chance that the company has to pay all the insured persons at one time. So, the insurance pooling helps the insurance companies to manage and settle the claims of the claimants and they can also have the funds to manage the risk. Also, the companies include co-pay and various deductibles so that the insurance can pay some amount in lieu of the insurance and this helps in addressing moral hazards.

b. The managed care services are basically a group of health service providers which includes doctors, nurses, and they are non-profit organizations that provide their services for reducing the cost of the medical services and also provide wider coverage. They charge a monthly fee instead of the daily fee which is paid by the patients. The health care service providers are hired on a salary basis and hence no extra amount is paid to them on every single service which they provide. This helps in curbing a lot of costs.  There is no sort of incentives and there is no limit on patients too. The doctors had to attend the patients into their salaried amount nothin is paid more than that. This strategy is highly used to control costs.

c.The managed care plans bear less risk in comparison to other insurance plans. Here there are fewer costs involved in providing the services and the insured is provided with a prescribed heat; the worker and they do not have to bear some other challenges. The risk is curber as the managed healthcare providers are hired on a salary basis and no extra cost is incurred. The people take the insurance plans and pay the premiums and hence it is guaranteed that the service providers will get their salary. It also provides a shield for the catastrophic claims of the individual who is insured and the risk is shared.