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. 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

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