10 Health Systems- part 3- insurance

10 Health Systems- part 3- insurance -...

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Health Care Systems: Financing Is the concept of insurance applicable to  health care?
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The concept of “insurance” refers to: A. The acceptance of the fact that bad things happen  in life. B. The creation of “risk pools” to minimize the  economic consequences of negative events. C. Paying up front to have money saved in the event of  an emergency. D. The government’s insistence that individuals be  responsible for the damage they inflict on others. 
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The Concept of  Insurance What is insurance?  How should medical care be paid for?   Risk aversion—Does it differ between individuals? When and why do you buy insurance? What sort of insurance do you buy? What is covered by your policy?
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The problem of  Uncertainty   (Economist Kenneth Arrow) Because of  incomplete  and   imperfect  information  all aspects of the medical encounter are  characterized by  uncertainty .  This applies to the  insurer as well. Information is  asymmetric :  The doctor knows more  than the patient about his/her needs and the best  course of action; the patient knows more about  his/her needs than the insurer.
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Why might the concept of “insurance” not apply to  Illness? A. Negative outcomes related to health cannot be  anticipated. B. Most illness is not expensive to treat and medical  care can be paid for out-of-pocket. C. The need for health care does not result from rare  events that most individuals will not experience. D. Individuals have perfect knowledge of the risks they  face and can control them.
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The three central dilemmas of medical financing Uncertainty relates to: The problem of  agency :  The patient delegates  decision-making authority to the physician.  This  creates a potential for abuse. The problem of  moral hazard :  Once insured the  individual faces a lower price constraint for health  care and may take excessive risks with his/her  health or consume excess services. The problem of  adverse selection :  The purchase of  coverage by people whose real risk is high relative  to the premium.
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Solutions to these problems Agency:  Control by the  Government Professional Peers Specific Contracts Moral Hazard:  Return some of the cost to the  patient; re-impose price barriers Co-payments Fair-share payments
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Adverse Selection Those at greatest need of medical care are the most  motivated to buy insurance.  These are exactly the risks  that the insurer does not want. Solution:  Medical underwriting (
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10 Health Systems- part 3- insurance -...

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