rmi final
Loss Ratio =
(Loss + Loss Adj Exp) / Premium
moral hazard
3rd-party payment for medical services increases moral hazard in the sense that the presence of the insurance changes loss prevention/minimization behavior of the insured. In other words, with insurance the insured becomes less risk-averse and will be inclined to consume more medical resources. Insureds will tend to think the price of medical care is zero or equal to their deductible or co-pay and will therefore overconsume medical care.
What about when you rent a car?
A collision damage waiver (CDW) may be unnecessary if you carry collision and comprehensive coverage on your own car
PAP policy typically written with split limits:
A maximum amount of $X for bodily injury (BI) to each person for any one accident A maximum amount of $Y for the bodily injury to all persons resulting from any one accident A maximum amount of $Z paid for property damage resulting from any one accident
Health Savings Account
A tax-exempt account established solely to pay qualified medical expenses of the account beneficiary HSAs have 2 components: A high-deductible health insurance policy that covers catastrophic medical bills (deductible > $1,300 for individuals and $2,600 for families in 2015) An investment account from which the account holder withdraws funds tax-free for medical costs; contributions made with pre-tax dollars; investment earnings accumulate tax-free
Cost and Financing of the ACA
ACA cost estimates ACA costs expected at $1.7 trillion from 2016-2025; offset by revenues from penalties, tax increases, etc. Estimated net spending result = $1.2T Funded through: Savings in Medicare/Medicaid (reduced fraud, abuses, unnecessary svcs.) New annual fees on pharmaceutical companies and medical devices Penalties on people/employers who do not purchase coverage 40% tax on "Cadillac" health insurance plans Limiting contributions to flexible spending accounts to $2,500 annually Medicare Hospital Insurance Tax increase (1.45% to 2.35% for high earners) New, additional (sur)tax of 3.8% on net investment income for high earners Increased threshold for tax deductibility of itemized medical expenses (from 7.5% to 10%) Indoor tanning tax of 10%
Health Insurance Marketplace
ACA creates a Health Insurance Marketplace in each state where individuals and small businesses can purchase affordable and qualified health insurance plans Enables people to comparison shop for standard plans, facilitates enrollment, and administers health insurance premium credits to help people of all incomes purchase coverage
Advanced Premium Tax Credits
ACA provides advanced premium tax credits to eligible people Tax credit can be used to offset cost of health insurance Effort to make coverage more affordable People with income between 100% and 400% of the federal poverty level qualify for a tax credit People earning $12,060 to $48,240 (individual);$24,600 to $98,400 (family of 4 (2017) Idea is to limit the share of income that must be spent on health insurance
Small Business Healthcare Tax Credits
ACA provides tax credits (subsidies) to business with fewer than 25 workers with average wages < $50,000.
Individual Mandate
ACA requires US citizens and legal residents to have qualifying health insurance or pay a penalty--$695 in 2016 or 2.5% of family income. After 2016, the penalty will be increased by annual cost of living adjustment.
Essential Health Benefits
ACA requires that most medical expense policies provide a comprehensive package of benefits and services: essential health benefits.
No-fault auto insurance
After an auto accident involving bodily injury, each party collects from his or her own insurer regardless of fault Enacted because of dissatisfaction and defects in the traditional tort liability system
Employer-Shared Responsibility Requirements
Also know as the "Employer Mandate." Requires employers with 100+ FT equivalent workers to either offer health insurance or pay $2,000 per employee annually. Same requirement applies to business with 50+ employees beginning in 2016.
Essential Health Benefits in ACA must (at a minimum include):
Ambulatory patient services ER services Hospitalization (such as surgery) Pregnancy, maternity, newborn care Mental health and substance abuse Prescription drugs Rehabilitation services Preventive and wellness services, chronic disease management Pediatric services (including oral and vision care)
Calendar-Year Deductibles:
An aggregate deductible that must be satisfied only once during the calendar year. All covered medical expenses can be applied toward the deductible which must be satisfied before any benefits are paid. Once the deductible is met, no additional deductible has to be satisfied during the calendar year. Deductibles for individuals are $1,000, $1,500 or $2,500 and for families $5,000 or $10,000 The idea is that by eliminating small claims, administrative costs are reduced and insurers can offer high limits with reasonable premiums
accelerated death benefits provision
Available for long-term care needs, other terminal illnesses, transplants, etc. Popularized with advent of HIV/AIDS
split limit
BI per person/total BI per accident/property damage liability per accident Ex., 250/500/100 - how much coverage is this? SC requires 25/50/25. Would you buy more than what's required? What does your home state require?
Market Power: Factors Impacting Competition
Barriers to Entry—Very high barriers in the market for medical services. Healthcare is heavily regulated, facilities and equipment are very expensive, licensing and certifications require difficult and lengthy processes to obtain. Medical professionals require specialized degrees, licenses, etc.
information problems
Buyer Ignorance—HC providers know much more about the services they deliver, their effectiveness and cost, alternatives, etc. Unlike most competitive markets, the "sellers" tells "buyers" what is needed and then offer to sell it to them
Insurers selling policies in the ACA Health Insurance Marketplace must cover a package of essential benefits and ...
Cannot impose an annual limit on benefits Cannot impose a lifetime dollar limit on benefits
ACA Also Offers "Catastrophic Plans"
Catastrophe Plans cover, on average, less than 60% of total average annual cost of care Available only to people under 30 or those with "hardship" exemption (e.g., homeless, death of close family member) Low monthly premiums but deductibles and co-payments are high Includes 3 primary care visits at no cost
ACA Marketplace Policies offer 4 Tiers of Coverage
Coverage is based on actuarial value of the plans (i.e., the expected share of health expenses the plan will pay for the specific group of enrollees) Platinum (90%) (most expensive plan) Gold (80%) Silver (70%) Bronze (60%) (least expensive plan) All offer Essential Health Benefits Vary by deductibles, copays, etc.
gap insurance
Covers the difference between what insured collects for the car after a total loss and what the insured still owes on the loan or lease
Arguments against no-fault laws include:
Defects of the negligence system are exaggerated Claims of savings from no-fault are exaggerated Court delays are confined to a few large cities Safe drivers may be penalized by no-fault No-fault provides no payment for pain and suffering The present tort liability system needs only to be reformed
Arguments in support of no-fault laws include:
Difficulty in determining fault Inequity in claim payments High transactions costs and attorney fees Fraudulent and inflated claims Delay in payments
Actuarially Fair Premium =
E(Loss) + Expenses + Investment Income + Fair Profit Loading
Personal Auto Policy (PAP)
Eligible vehicles - autos; some trucks, vans Autos covered by the policy include: Any auto shown in the declarations A newly acquired auto A trailer owned by the named insured A temporary substitute vehicle (used briefly due to repair, servicing, loss, or destruction of covered auto)
Expansion of Medicaid
Expands Medicaid to adults with incomes up to 133% of FPL. Not all states comply with this provision as parts of this provision were ruled unconstitutional by the US Supreme Court SC is one of 14 states not to expand Medicaid; expansion estimated would cover 92,000 people (about 21% of uninsured in SC); SC residents pay federal tax that is used to fund expansion in other states; some economists anticipate all states will eventually expand eligibility to reduce uninsured
Other-than-collision loss
Falling objects Hail, water, flood, fire, windstorm Theft or larceny Explosion or earthquake Malicious mischief or vandalism Riot or civil commotion Contact with a bird or animal Glass breakage
When do HSA's make sense?
HSAs make sense for healthy people with sufficient funds to pay large deductibles
The Affordable Care Act (ACA):
Has made health insurance available to millions of uninsured Americans Provides substantial subsidies to uninsured individuals and small businesses to make insurance more affordable Contains provisions to lower health-care costs in the long run
Managed Care Plans
Health Maintenance Organizations (HMOs) Preferred Provider Organizations (PPOs) - most popular
Rising Healthcare Expenditures
Healthcare expenditures in the United States have increased substantially over time and are growing faster than the national economy Estimated national health expenditures will total $3.4 trillion in 2016, or 17.7 percent of the nation's GDP
Employer Responses to Rising Healthcare Costs
Increased employee co-payments (e.g., deductibles, higher coinsurance percentages, etc.) Introduction of flexible benefit plans that provide a variety of health, life and other benefits with a fixed employer contribution Termination of benefits entirely Redesigning benefits to create incentives for more efficient utilization of healthcare resources Efforts to reduce administrative cost Increased use of managed care providers (e,g, HMO, PPO)
Coinsurance:
Individual medical expense policies typically contain coinsurance provisions . Coinsurance is the percentage of the bill in excess of the deductible which the insured must pay out-of-pocket up to some maximum dollar limit. Typical coinsurance percentage is 20%, 25% or 30%. Example: Jo has covered medical expenses of $10,000, the calendar-year deductible is $1,000 and the coinsurance percentage is 20%. How much does Jo pay beyond the deductible? $10,000 - $1,000 = $9,000 x 0.2 = $1,800; Insurer pays remaining $7,200. 2 Basic Purposes of Coinsurance Reduce premiums (or keep them low) Prevent over-utilization of plan benefits
Adverse Selection
Individuals have more information about their health status and likelihood to use medical services than do insurers. High risks know they are high risk, buy insurance, and use relatively more care. Consequently, low-risks end up subsidizing high-risks. Screening for health status can help but this is expensive.
A study by the Institute for Civil Justice found that no-fault plans:
Initially reduced attorney fees and claim processing costs Premiums are higher in no-fault states
Uninsured Motorists Coverage
Injured person's own insurance pays the bodily injury or property damage caused by an uninsured motorist Motorists have some protection against uninsured drivers Claim settlement is faster and more efficient than a tort liability lawsuit Drawbacks: often low limits for Uninsured Motorists Coverage and injured person must establish that the uninsured motorist is legally liable; sometimes property damage not covered
If more than one liability policy covers a loss:
Insurer pays its pro rata share of the loss for an owned vehicle The insurance coverage is excess over any other insurance for a nonowned vehicle
Medical Loss Ratios (80/20 Rule or Medical Loss Ratio Rule)
Insurers required to meet a minimum loss ratio (MLR) of 80% for individual and small group market, 85% for large group market MLR refers to the percentage (share) of premiums used to pay claims and activities that improve the quality of care Insurers must pay a minimum of 80% of premium collected on benefits and keep only 20% for expenses and profits
Why don't we allow health insurers to classify risk to the point that it is cost beneficial to do so?
It might make insurance unaffordable. And some risk factors are not within the control of the applicant (e.g., a chronic disease). Society values affordability and accessibility to health insurance; we want people to have insurance to pay for medical care. Without insurance there are poorer health outcomes and there's cost shifting (to those with insurance), overutilization of emergency rooms, etc.
Medicaid
Joint federal/state program for people that qualify based on income Administered by the states Jointly funded by federal and state governments ACA significantly expanded eligibility/ federal funding of Medicaid
Liability coverage (Part A) - most important section
Liability coverage applies to: Named insured and any resident family member Any person using the named insured's covered auto with reasonable belief of permission Party responsible for insured's use of auto on behalf of that person or organization Ex., Errand for employer and employer is sued; employer covered under employee's PAP PAP doesn't cover if employee driving employer's vehicle.
Basic Provisions of the ACA: Prohibitions on Certain Insurer Practices:
Lifetime and annual limits on coverage prohibited, pre-existing condition exclusions prohibited, rescission of insurance policies prohibited, retention of coverage until age 26, guaranteed access to health insurance, grandfathered plans, medical loss rations (80/20 rule)
Cost-Sharing Subsides
Low-income individuals can receive subsidies for out-of-pocket costs such as deductibles and co-insurance
Out-of-Pocket Maximum Limits:
Marketplace policies have an out-of-pocket maximum limit beyond which 100% of the covered medical expenses in excess of the deductible. Sometimes called "stop-loss limit". Purpose is to reduce crushing burden of a catastrophic loss (e.g., cancer)
Fee-for-Service (FFS) Issues
Most healthcare providers are paid on a FFS basis. More services delivered means more fees paid. FFS problems include: Incentive to generate high volume of medical procedures, tests, etc., rather than focus solely on patient outcome FFS encourages unnecessary medicals tests/treatments and use of new technologies for all patients (even if less expensive technology works) FFS provides little incentive for providers to coordinate with other providers to deliver care efficiently (e.g., redundant testing)
Depending on the policy, L T C insurance policies cover a wide range of services including:
Nursing home care Home healthcare Respite care for a caregiver Hospice care Personal care in the home Services in assisted living facilities, adult daycare centers, and other community services
Cost/Benefit Measurement Problems
Often very hard to measure benefit relative to cost Clear that preventative care (e.g., vaccinations) provide more benefit than expensive technologically intensive interventions But HC market is characterized by rapid and continuing advances with high costs, overuse of ERs (e.g., for non-emergency conditions); a high-cost culture and "medical practice pattern" develops
Fee-for-Service Plans
Physicians paid a fee for each covered service Insured selects their own physician Cost-containment was not heavily stressed
Are LTC plans renewable?
Plans are guaranteed renewable; inflation protection available.
Individual Medical Expense Insurance
Protects and individual or family for covered medical expenses because of sickness or injury Under the ACA, insurers are prohibited from imposing lifetime or annual limits on essential health benefits
Improving Quality, Lowering Healthcare Costs
Rebuilding the primary care workforce Preventing disease and illness Strengthening community health centers Cracking down on healthcare fraud Reducing paperwork and administrative expenses Create incentives for physicians to join Accountable Care Organizations, which are doctor groups that seek to better coordinate patient care and improve outcomes at lower cost. ACO can keep some of the savings. Pay physicians based on value not volume
2 Basic Purposes of Coinsurance
Reduce premiums (or keep them low) Prevent over-utilization of plan benefits
PAP doesn't cover ride-sharing. Other additional coverage needed:
Ride-share company (Uber, Lyft) offers commercial insurance for each stage of the trip
Major problems or challenges of healthcare
Rising healthcare expenditures Large number of uninsured in the population Considerable waste and inefficiency
Economies of Scale
Some believe that medical services can be provided most efficiently on a large scale. At the same time, most HC is consumed locally. These competing points are at the center of the debate as to whether the private market is the best way to deliver HC services in the US.
Insurers use a variety of factors to establish auto insurance premiums, including:
Territory Age, gender, and marital status Use of the auto Driver education Good student discount Number and types of cars Individual driving record Insurance score
If more than one auto policy covers a physical damage loss:
The insurer pays its pro rata share of the loss for an owned vehicle The insurance coverage is excess over any other insurance for a nonowned vehicle
Cancellation provision:
The named insured can cancel at any time by returning the policy to the insurer or providing written notice. If a policy has been in force for more than 60 days, the insurer can cancel only if: The premium has not been paid The driver's license of any insured has been suspended, or The policy was obtained through material misrepresentation
Financial responsibility laws have two limitations:
There is no guarantee that all accident victims will be paid State laws require only minimum liability limits, which are relatively low
Reducing Adverse Selection is difficult when health insurers cannot classify risk.
They can however offer a selection of health insurance policies with different levels of deductibles, cost sharing, and incentives to control costs. The ACA offers choices. Higher risks are more likely to choose low deductible, higher premium plans all else equal because they will "get their money's worth." Lower risks are more likely to choose higher deductible, lower premium plans because they need less care, will have to pay deductibles less often, and like the lower premiums. Of course income level plays a part, too, in which policy the applicant prefers
Medicare
U.S. social insurance program covering the elderly (defined as 65+) Medicare has 4 benefit plans, known as parts: A (hospital) B (physician and medical) C (private plans like Medicare Advantage; must enroll in Parts A & B and covers same and possibly more) D (drug benefit) Part A applies to all participants; B,C and D are optional
Does uninsured motorists coverage pay for punitive damages?
Uninsured motorists coverage does not pay for punitive damages
capitation fee
a fixed annual payment for each plan member regardless of the frequency or type of service provided
preferred provider organization (PPO)
a plan that contracts with healthcare providers to provide certain medical services to members at discounted fees PPO providers typically are paid on a (discounted) fee-for-service basis Patients are not required to use a preferred provider, but the deductible and co-payments are lower if they do; more choice than with HMO If the provider's actual charge exceeds the negotiated fee, the provider absorbs the excess Most PPOs do not use a gatekeeper physician
Automatic termination:
a policy is automatically terminated if the insured declines the insurer's offer to renew The P A P provides coverage in the United States, US territories, Puerto Rico, and Canada
gatekeeper physician
a primary care physician who determines whether medical care from a specialist is necessary
elimination period
a waiting period during which time benefits are not paid
pure no-fault plan
accident victims cannot sue at all, regardless of the amount of the claim, but collects from own insurer; no state has this kind of plan
Reasons behind rising healthcare costs
advances in technology, cost insulation because of third party payers, fee for service (ffs) issues, health administrative costs, lack of transparency in cost and quality information, state-mandated benefits, cost shifting by medicare and medicaid, defensive medicine
health maintenance organization (HMO)
an organized system of health care that provides comprehensive medical services to its members on a prepaid basis HMOs negotiate rates and enter into agreements with hospitals and physicians to provide medical services Broad, comprehensive medical services are provided Traditional emphasis toward prevention and health "maintenance" rather than specialty care Choice of providers is limited Cost-sharing provisions are imposed
A few states have established a joint underwriting association (J U A), where:
auto insurers in the state participate in providing coverage to high-risk drivers through a common pool Each insurer pays its pro rata share of pool losses and expenses The J U A designs the policies and sets the rates Underwriting losses are proportionately shared by the companies based on premiums written A limited number of insurers are designated as servicing insurers, but all insurers participate in the pool
miscellaneous-type vehicle endorsement
can be added to the P A P to insure motorcycles, mopeds, motor scooters, golf carts, motor homes, dune buggies, etc. Does not cover snowmobiles The liability coverage does not apply to a nonowned vehicle A passenger hazard exclusion can be elected, which excludes liability for bodily injury to any passenger on a motorcycle
Underinsured motorists coverage
can be added to the PAP to provide more complete protection Coverage is typically added as an endorsement Some states make coverage mandatory, while others make it optional
Medical payments coverage
covers all reasonable medical and funeral expenses incurred by an insured in an accident Coverage is not based on fault Covers medical services rendered within 3 years from the date of the accident The named insured and family members are covered: While occupying any motor vehicle, or As pedestrians when struck by a motor vehicle Other persons occupying a covered auto are covered, but only in an owned vehicle
insurers can add a clarifying endorsement to exclude coverage for ____ from a direct and accidental physical damage loss
diminution in value
Nonrenewal:
if an insurer decides to discontinue coverage, the insured must be given notice at least 20 days before the end of the policy period
Specialty insurers
insurers that specialize in insuring motorists with poor driving records
Managed care
is a generic name for medical expense plans that provide covered services to the members in a cost-effective manner An employee's choice of physicians and hospitals may be limited Cost control and cost reduction are heavily emphasized Utilization review is done at all levels Quality of care provided by physicians is monitored Healthcare providers share in the financial results through risk-sharing techniques Emphasis on preventive care and maintenance of healthy lifestyles
Tips for buying auto insurance
maintain good credit carry adequate liability insurance carry higher deductibles drop collision insurance on older vehicles shop around for auto insurance improve your driving record take advantage of discounts
Most states have an auto insurance plan (assigned risk plan) that:
makes auto insurance available to motorists who are unable to obtain insurance in the voluntary market All auto insurers in the state are assigned a proportionate share of high-risk drivers Premiums charged are substantially higher than those charged in the voluntary markets
In some states, an injured driver may sue if the bodily injury claim exceeds a certain ____
monetary threshold
choice no-fault plan
motorists can elect to be covered under the state's no-fault law and pay lower premiums; KY, NJ, PA have this kind of plan Or, they can retain the right to sue under the tort liability system and pay higher premiums
Benefit trigger
must be met to receive benefits. Either, The insured is unable to perform a certain number of activities of daily living (ADLs), or Severe cognitive impairment
modified fee-for-service
payments are based on a negotiated fee schedule
Long-term care insurance
pays a daily/monthly benefit for medical or custodial care received in a nursing facility, hospital, or at home
add-on plan
pays benefits to an accident victim without regard to fault; injured person has no limitation on right to sue (may receive benefits from negligent driver's insurer and still sue) Not a true no-fault plan
Uninsured motorists coverage
pays for BI caused by an uninsured motorist, by a hit-and-run driver, or by a negligent driver whose insurance company is insolvent Uninsured motorist must be legally liable Insurer's maximum limit of liability for any single accident is the amount shown in the declarations In some states, property damage is also covered
Individual medical expense insurance
protects an individual or family for covered medical expenses because of sickness or injury Plans are purchased by people who are not employed, retired workers, and students
Low-cost auto insurance
provides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insurance (e.g., NJ and CA offer these) Goal is to reduce the number of uninsured drivers
Financial responsibility laws
require motorists to furnish proof of financial responsibility up to certain minimum dollar limits after the first accident or conviction (e.g., drunk driving)
compulsory insurance law
requires motorists to carry at least a minimum amount of liability insurance before the vehicle can be licensed or registered Some argue that the law provides greater protection against uninsured drivers because motorists must provide evidence of financial responsibility before an accident occurs Critics argue that mandatory insurance does not reduce the number of uninsured drivers Computer reporting systems to track uninsured motorists have not been effective
"no pay, no play" laws
restrict uninsured motorists from suing negligent drivers for noneconomic damages
High-risk drivers who have difficulty obtaining auto insurance in the voluntary market can obtain insurance in the:
shared (residual) market
Expense-incurred (or reimbursement) policies
the most common type of LTC insurance policies Policies reimburse for actual charges up to a daily limit Consumers have a choice of daily benefits, which range from $50 to $350 or more Policies may have limits on the total amount paid over the lifetime of the policy
Collision
the upset of the auto or its impact with another vehicle or object Collision losses are paid regardless of fault
All states permit a lawsuit in the event of a serious injury
true
In some states, an injured driver may sue if the bodily injury claim exceeds a ______, e.g., if the injury involves death, dismemberment, disfigurement, or permanent loss of a bodily member or function
verbal threshold
modified no-fault plan
victims have a limited right to sue to collect from negligent driver's insurer; 10 states have this approach