Traditional Insurance versus Managed Care Managed Care Products

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

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

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.

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

How They Look from Consumer’s Perspective 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

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