Traditional Insurance versus Managed Care

1. Traditional Insurance versus Managed Care Managed Care Products

2. The Insurance Trade-off • 10-percent chance of hospitalization that costs $10,000 • Or pay premium (.10 x $10,000) + (.90 x 0) = $1000

3. WARNING!!Trade-off Changes as Soon As You Take The Insurance ! • 10-percent chance of hospitalization that costs $10,000 • Or pay premium (.10 x $10,000) + (.90 x 0) = $1000

4. Moral hazard • Members of a health insurance plan • use more services • are willing to pay higher prices for services when other people are sharing the bill.

5. Two Ways to Control Moral Hazard • Make enrollees pay a (bigger) share of the bill • Traditional health insurance • Have rules about what enrollees can buy and from whom • Managed care

6. Managed Care Little or no cost-sharing Covers preventive care Limited provider choice Primary care “gatekeeper” Traditional Insurance Deductibles, 80/20 Covers illness/injury only Go anywhere Self-referral How They Look from Consumer’s Perspective

7. Managed Care Products • Health Maintenance Organization (HMO) • Point of Service (POS) • Open Access HMO • Preferred Provider Organization (PPO)