The potential role of risk-equalization mechanisms in health insurance: the case of South Africa.
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International agencies such as the World Bank have widely advocated the use of health insurance as a way of improving health sector efficiency and equity in developing countries. However, in developing countries with well-established, multiple-player health insurance markets, such as South Africa, extension of insurance coverage is now inhibited by problems of moral hazard, and associated cost escalation and fragmentation of insurer risk-pools. Virtually no research has been done on the problem of risk selection in health insurance outside developed countries. This paper provides a brief overview of the problem of risk fragmentation as it has been studied in developed countries, and attempts to apply this to middle-income country settings, particularly that of South Africa. A number of possible remedial measures are discussed, with risk-equalization funds being given the most attention. An overview is given of the risk-equalization approach, common misconceptions regarding its working and the processes that might be required to assess its suitability in different national settings. Where there is widespread public support for social risk pooling in health care, and government is willing and able to assume a regulatory role to achieve this, risk-equalization approaches may achieve significant efficiency and equity gains without destroying the positive features of private health care financing, such as revenue generation, competition and free choice of insurer. (+info)
Does competition by health maintenance organizations affect the adoption of cost-containment measures by fee-for-service plans?
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How groups insured by fee-for-service health plans react to increased competition from health maintenance organizations (HMOs) is an unresolved question. We investigated whether groups insured by indemnity plans respond to HMO market competition by changing selected health insurance features, such as deductible amounts, stop loss levels, and coinsurance rates, or by adopting utilization management or preferred provider organization (PPO) benefit options. We collected benefit design data for the years 1985 through 1992 from 95 insured groups in 62 US metropolitan statistical areas. Multivariate hazard analysis showed that groups located in markets with higher rates of change in HMO enrollment were less likely to increase deductibles or stop loss levels. Groups located in markets with higher HMO enrollment were more likely to adopt utilization management or PPO benefit options. A group located in a market with an HMO penetration rate of 20% was 65% more likely to have included a PPO option as part of its insurance benefit plan than a group located in a market with an HMO penetration rate of 15% (p < 0.05). Concern about possible adverse selection effects may deter some fee-for-service groups from changing their health insurance coverage. Under some conditions, however, groups insured under fee-for-service plans do respond to managed care competition by changing their insurance benefits to achieve greater cost containment. (+info)
Genetics and the British insurance industry.
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Genetics and genetic testing raise key issues for insurance and employment. Governmental and public concern galvanised the British insurance industry into developing a code of practice. The history of the development of the code, issues of genetic discrimination, access to medical information, consent and the dangers of withholding information and the impact on the equity of pooled risk are explored. Proactive steps by the Association of British Insurers suggest that moral reflection not legislation is the way forward. (+info)
No exit? The effect of health status on dissatisfaction and disenrollment from health plans.
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OBJECTIVE: To examine the implications of serious and chronic health problems on the willingness of enrollees to switch health plans if they are dissatisfied with their current arrangements. DATA SOURCE: A large (20,283 respondents) survey of employees of three national corporations committed to the model of managed competition, with substantial enrollment in four types of health plans: fee-for-service, prepaid group practice, independent practice associations, and point-of-service plans. STUDY DESIGN: A set of logistic regression models are estimated to determine the probability of disenrollment, if dissatisfied, controlling for the influence on satisfaction and disenrollment of age, race, education, family income and size, gender, marital status, mental health status, pregnancy, duration of employment and enrollment in the plan, number of alternative plans, and HMO penetration in the local market. Separate coefficients are estimated for enrollees with and without significant physical health problems. Additional models are estimated to test for the influence of selection effects as well as alternative measures of dissatisfaction and health problems. DATA COLLECTION: Data were collected through a mailed survey with a response rate of 63.5 percent; comparisons to a subsample administered by telephone showed few differences. PRINCIPAL FINDINGS: In group/staff model HMOs and point-of-service plans, only 12-17 percent of the chronically ill enrollees who were so dissatisfied when surveyed that they intended to disenroll actually left their plan in the next open enrollment period. This compared to 25-29 percent of the healthy enrollees in these same plans, who reported this level of dissatisfaction and 58-63 percent of the enrollees under fee-for-service insurance. CONCLUSIONS: Switching plans appears to be significantly limited for enrollees with serious health problems, the very enrollees who will be best informed about the ability of their health plan to provide adequate medical care. These effects are most pronounced in plans that have exclusive contracts with providers. We conclude that disenrollment provides only weak safeguards on quality for the sickest enrollees and that reported levels of dissatisfaction and disenrollment represent inaccurate signals of plan performance. (+info)
Paying a premium: how patient complexity affects costs and profit margins.
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OBJECTIVE AND BACKGROUND: Tertiary medical centers continue to be under extreme pressure to deliver high-complexity care, but paradoxically there is considerable pressure within these institutions to reduce their emphasis on tertiary care and refocus their efforts to develop a more community-like practice. The genesis of this pressure is the perceived profitability of routine surgical activity when compared with more complex care. The purpose of this study is to assess how the total cost and profit (loss) margin can vary for an entire trauma service. The authors also evaluate payments for specific trauma-related diagnostic-related groups (DRGs) and analyze how hospital margins were affected based on mortality outcome. MATERIALS AND METHODS: The authors analyzed the actual cost of all trauma discharges (n = 692) at their level I trauma center for fiscal year 1997. Data were obtained from the trauma registry and the hospital cost accounting system. Total cost was defined as the sum of the variable, fixed, and indirect costs associated with each patient. Margin was defined as expected payments minus total cost. The entire population and all DRGs with 10 or more patients were stratified based on survival outcome, Injury Severity Score, insurance status, and length of stay. The mean total costs for survivors and nonsurvivors within these various categories and their margins were evaluated. RESULTS: The profit margin on nonsurvivors was $5,898 greater than for survivors, even though the mean total cost for nonsurvivors was $28,821 greater. Within the fixed fee arrangement, approximately 44% of transfers had a negative margin. Both survivors and nonsurvivors become increasingly profitable out to 20 days and subsequently become unprofitable beyond 21 days, but nonsurvivors were more profitable than survivors. CONCLUSIONS: There is a wide variance in both the costs and margins within trauma-related DRGs. The DRG payment system disproportionately reimburses providers for nonsurvivors, even though on average they are more costly. Because payers are likely to engage in portfolio management, patients can be transferred between hospitals based on the contractual relationship between the payer and the provider. This payment system potentially allows payers to act strategically, sending relatively low-cost patients to hospitals where they use fee-for-service reimbursement and high-cost patients to hospitals where their reimbursement is contractually capped. Although specific to the authors' trauma center and its payer mix, these data demonstrate the profitability of maintaining a level I trauma center and preserving the mission of delivering care to the severely injured. (+info)
Simulating the effects of employer contributions on adverse selection and health plan choice.
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OBJECTIVE: To investigate the effect of employer contribution policy and adverse selection on employees' health plan choices. STUDY DESIGN: Microsimulation methods to predict employees' choices between two health plan options and to track changes in those choices over time. The simulation predicts choice given premiums, healthcare spending by enrollees in each plan, and premiums for the next period. DATA SOURCES: The simulation model is based on behavioral relationships originally estimated from the RAND Health Insurance Experiment (HIE). The model has been updated and recalibrated. The data processed in the simulation are from the 1993 Current Population Employee Benefits Supplement sample. PRINCIPAL FINDINGS: A higher fraction of employees choose a high-cost, high-benefit plan if employers contribute a proportional share of the premium or adjust their contribution for risk selection than if employees pay the full cost difference out-of-pocket. When employees pay the full cost difference, the extent of adverse selection can be substantial, which leads to a collapse in the market for the high-cost plan. CONCLUSIONS: Adverse selection can undermine the managed competition strategy, indicating the importance of good risk adjusters. A fixed employer contribution policy can encourage selection of more efficient plans. Ironically, however, it can also further adverse selection in the absence of risk adjusters. (+info)
The economics and challenges of breast cancer in a managed care environment. Based on a presentation by Alan H. Heaton, PharmD.
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Breast cancer and its population effect are inseparable. One of the challenges managed care organizations (MCOs) face is instilling the idea that patients are part of a population, and in turn, that population is composed of patients. Therefore, there is a need to treat both patients individually and populations as a whole. Because breast cancer, like other major illnesses, involves large-scale expenditures for drugs, pharmaceutical benefit management companies are working with MCOs to look not only at drug costs but at global healthcare expenditures. Whereas treatment of breast cancer has direct costs to a healthcare plan, it is associated with a great deal of comorbidity as well. In dealing with such potential financial exposure, the challenge to health plans is to find individuals at risk, enable them to access the healthcare system, and see that they get proper care. A proactive communications effort involving such media as patient newsletters and a website can educate healthplan members, thereby facilitating the self-assessment of risk factors. (+info)
Is premium support the right medicine for Medicare?
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This paper assesses the desirability of transforming Medicare into a premium-support system. I focus on three areas crucial to the future of Medicare: cost savings, beneficiary choice, and the stability of traditional Medicare. Based on my analysis of the Bipartisan Commission on the Future of Medicare plan, I find substantial problems with adopting premium support for Medicare. In particular, projections of premium-support savings are based on questionable assumptions that the slowdown in health spending during 1993-1997 can be sustained and extrapolated to future Medicare performance. Consequently, premium support may inadvertently destabilize public Medicare and erode beneficiary choice without achieving substantial savings. (+info)