METHODICAL INSTRUCTION FOR STUDENTS OF THE

INSTITUTE OF NURSING

 

LESSON № _6_ (PRACTICAL – 6 HOURS)

 

Theme: 1. Medical Insurance in the System of Health Care. The Demand for Medical Insurance. – 6 hours.

 

Aim: 1. To understand empirical estimates of the price and income elasticities of the demand for health insurance, the regulation of managed care organizations.

 

Professional orientation of students: Employment-related insurance is the dominant type of private health insurance coverage in the United States. Only a small percentage of the population purchases health insurance directly from insurance companies. Because most private health insurance is purchased through employers, many people believe that employers pay for their health insurance coverage. But economic theory suggests that nothing could be further from the truth because employees pay for their health insurance coverage in the form of reduced or forgone wages.

Economic theory implies that a trade-off exists between insurance premiums and wages because, during a particular time period, a worker tends to generate a certain value or marginal revenue product (MRP) for a company. The MRP that a worker generates depends on his or her marginal productivity and the price of the good or service in the marketplace that she helps produce (assuming that output is produced in a competitive market). More precisely, economic theory posits that MRP equals the price of the product times the marginal productivity of the worker. It follows that a higher price and greater productivity both increase a worker’s MRP or worth to a company.

 

1. Individual Students Program.

Theme № 1 for the Practical Class on “Medical Insurance in the System of Health Care. The Demand for Medical Insurance”

1.                 What is the Medical Insurance?

2.                 The Conventional Theory of the Demand for Private Health Insurance.

3.                 Deriving the Demand for Private Health Insurance.

4.                 Factors Affecting the Quantity Demanded of Health Insurance.

5.                 Nyman’s Access Theory of the Demand for Private Health Insurance.

6.                 Conventional Insurance Theory According to Nyman.

7.                 A Simple Exposition of the Nyman Model.

8.                 Insights and Policy Implications of the Nyman Model.

9.                 The Health Insurance Product: Traditional versus Managed Care Insurance.

10.            Financial Incentives and Management Strategies Facing Consumers/Patients.

11.            Financial Incentives and Management Strategies Facing Health Care Providers.

12.            Consumer-Directed Health Care Plans.

13.            The Regulation of managed care organizations.

 

2. Test evaluation and situational tasks:

a) For the Practical Class on “Medical Insurance in the System of Health Care. The Demand for Medical Insurance”

1. Name the formula to calculation the price elasticity of demand.

A.               Q = f[(1 – et/100) × P

B.               

C.               m = P₁L₁ + p₂L₂

D.               E(U) = π₀ × 90 + π₁ × 70

E.               

2. Where in system of protection health the most frequent is used by tariffs?

A.               In system of voluntary medical insurance (VMI)

B.               In system of private medical aid

C.               In system of co-operative medical aid

D.               In system of obligatory medical insurance (ОМI)

E.                In system of the state medical aid

3. Health insurance can be broken down into:

A.               Two broad categories

B.                Three broad categories

C.               Four broad categories

D.               Five broad categories

E.                Six broad categories

4. The main types of MCOs are the:

A.               Staff model, group model and Individual Practice Association (IPA) model

B.                Point of service plan, price of insurance and Evidence-Based Practice.

C.               Intenance organization, the preferred provider organization

D.               Group model, network model and staff model

E.                Preferred provider organization, insurance coverage and utility

5. What model treats insurance coverage as offering people an income transfer from those who remain healthy to themselves in the event they become ill?

A.               Nyman’s access theory and conventional theory

B.                Only Nyman’s access theory

C.               Miller’s access theory

D.               Only Conventional theory

E.                The answer is no

 

3. Correct answers of test evaluations and situational tasks for Practical Class on “Medical Insurance in the System of Health Care. The Demand for Medical Insurance”:

1. E.  2. D.  3. A.  4. C.  5. B.

 

4. References:

А – Basic:

1.                 Rexford E. Santerre, Stephen P. Neun. Health Economics: Theory, Insights, and Industry Studies, 5 editions. – S-th-W-rn C-ge P-b, 2009. – ISBN: 0324789076. – 624 p.

2.                 Philip A. Musgrove. Health Economics in Development. –W..d B-k P—ns, 2003. – ISBN: 0821355708. – 455 p.

3.                 A.J. Culyer, J.P. Newhouse. Handbook of Health Economics, Volume 1A. –Publisher: Nor the Holland, 2000. – ISBN: 0444504702. – 1000 p.

4.                 Rice, Jones. Applied Health Economics. – Routledge, 2007. – ISBN: 0415397715. – 335 p.

5.                 Jordan Braverma. Health Economics. – Pharmaceutical Press, 2009. – ISBN: 0853698678. – 359 p.

6.                  Peter Zweifel, Friedrich Breyer, Mathias Kifmann. Health Economics. –Springer, 2009. – ISBN: 3540278044. – 529 p.

7.                  Ceri J. Phillips. Health Economics: An Introduction for Health Professionals. – Wiley-Blackwell, 2005-11-04. – ISBN:0727918494. – 160 p.

 

В – Additional:

1.                 Anthony J. Culyer. The Dictionary of Health Economics Publisher. – Edwаrd Elgаr Pub., 2005-09-05. – ISBN: 1843762080. – 390 p.

2.                 Stefan Felder, Thomas Mayrhofer. Medical Decision Making: A Health Economic Primer. – Springer, 2011-07-25. – ISBN: 3642183298. – 217 p.

3.                  David Hyman. Improving Healthcare: A Dose of Competition (Developments in Health Economics and Public Policy). – Publisher: Springer, 2006. – ISBN: 0387257519. – 436 p.

4.                  Francesco Paolucci. Health Care Financing and Insurance: Options for Design (Developments in Health Economics and Public Policy). – Publisher: Springer, 2010. – ISBN: 3642107931. – 115 p.

5.                 Barbara Mcpake. Health Economics: An International Perspective. – Routledge, 2002. – ISBN: 0415277361, 0415277353. – 344 p.

6.                 Anthony Scott, Alan Maynard, Robert Elliott. Advances in Health Economics. – Wiley, 2003-01-17. – ISBN: 0470848839. – 274 p.

7.                 Dr. Ross M. Mullner. Encyclopedia of Health Services Research. – English, 2009. – ISBN: 1412951798. – 1409 p.

 

5. Methodology of Practical Class. (9⁰⁰-11¹⁵)

Theme № 1 for Practical Class on “Medical Insurance in the System of Health Care. The Demand for Medical Insurance”

Work 1.

Suppose Joe and Leo both face the following individual loss distribution:

1. Determine the expected loss and standard deviation of the expected loss faced by Joe and Leo on an individual basis.

2. Suppose that Joe and Leo enter into a pooling-of-losses arrangement. Show what happens to the expected loss and variability of the expected loss as a result of the pooling arrangement.

3. Given their benefits, why don’t most people simply form their own pooling-of-losses arrangements rather than involve insurance companies?

 

Work 2.

Joe is currently unemployed and without health insurance coverage. He derives utility (U) from his interest income on his savings (7) according to the following function:

U = 5Y^1/2.

Joe presently makes about $40,000 of interest income per year. He realizes that there is about a 5 percent probability that he may suffer a heart attack. The cost of treatment will be about $20,000 if a heart attack occurs.

1.                 Calculate Joe’s expected utility level without any health insurance coverage.

2.                 Calculate Joe’s expected income without any health insurance coverage.

3.                 Suppose Joe must pay a premium of $1,500 for health insurance coverage with ACME insurance. Would he buy the health insurance? Why or why not?

4.                 Suppose now that the government passes a law that allows all people – not just the self-employed or employed – to have their entire insurance premium exempted from taxes. Joe is in the 33 percent tax bracket. Would he buy the health insurance at a premium cost of $1,500? Why or why not? What implication can be drawn from the analysis?

5.                 Suppose Joe purchases the health insurance coverage and represents the average subscriber, and his expectations are correct. Calculate the loading fee the insurance company will receive.

 

Work 3.

During the Reagan administration, the marginal tax rate on wage income fell dramatically. For example, the top rate was sliced from 70 to 33 percent. Use the demand theory of health insurance to predict the effect of this change on the quantity demanded of employer-sponsored health insurance.

 

Work 4.

Explain the effect of the following changes on the quantity demanded of health insurance.

v       A reduction in the tax-exempt fraction of health insurance premiums

v       An increase in buyer income

v       An increase in per capita medical expenditures

v       New technologies that enable medical illnesses to be predicted more accurately

v       A tendency among buyers to become less risk averse, on average

 

Work 5.

1. What are the primary differences between the HMO, PPO, and POS plans?

2. Explain the following terms:

v       Community rating

v       Experience rating

v       Selective contracting

v       Utilization review

v       Physician profiling

v       Practice guidelines

v       Formulary

v       Gatekeeper

v       Gag rules

v       Any willing provider law

v       Freedom of choice law

 

Work 6.

1. Suppose that an individual’s demand for the number of physician visits per year, Q, can be represented by the following equation: Q = 5 – 0.04P, where P, the market price of an office visit, equals the marginal cost of $100. Determine the efficient number of office visits according to conventional theory. Now assume that the person purchases complete health insurance coverage and the demand for (but not quantity demanded of) physician care remains unchanged. How many times would this fully insured person visit the physician? Calculate the welfare loss or moral hazard cost associated with the insurance coverage.

2. Graphically and in words, explain how the analysis in question 1 might change if we adopt the conceptual framework provided by Nyman.

 

Work 7.

1. Use all of the information in work 1 to calculate the expected utility loss of paying the premium and remaining healthy and compare it to the expected utility gain of the income transfer if ill (ignore the tax exemption feature of premium payments). Would Joe purchase health insurance according to the Nyman model? How does that prediction compare to the prediction of the conventional model under similar circumstances?

2. According to Nyman, conventional theory predicts that people behave irrationally. How does he justify this criticism? Explain.

3. Briefly summarize the two ways that managed care might affect the cost and quality of medical care.

4. If you had a choice between a traditional unrestricted indemnity plan with a 10 percent copayment and a staff HMO with no copayment, at what percentage difference in premiums (that is, 10 percent, 20 percent, 30 percent) would you be indifferent between the plans? Do you think your choice of the percentage difference is a function of your age and/or health status? If you were elderly and/or sickly, which plan would you prefer if they cost you the same amount? Why?

 

6. Seminar discussion of theoretical issues. (11⁴⁵-13¹⁵)

7. Student’s independent work (13^15-14⁰⁰).

8. Initial level of knowledge and skills. (14¹⁵-15⁰⁰)

9. Students should know:

Theme № 1 for Practical Class on “Medical Insurance in the System of Health Care. The Demand for Medical Insurance”

1.                 The models of the demand for health insurance.

2.                 Empirical estimates of the price and income elasticities of the demand for health insurance.

3.                 The health insurance product, contrasting traditional, managed care.

4.                 Consumer-directed insurance coverage.

5.                 Regulation of managed care organizations.

 

10. Students should be able to:

Theme № 1 for Practical Class on “Medical Insurance in the System of Health Care. The Demand for Medical Insurance”

1.                 Compares the conventional and Nyman models of the demand for health insurance.

2.                 Explain the effect of the following changes on the quantity demanded of health insurance.

3.                 Graphically and in words, explain how the analysis might change if we adopt the conceptual framework provided by Nyman.

 

 

 

 

 

 

Methodical instruction has been worked out by:                                             Assoc.Prof. Panchyshyn N.Ya.

 

 

 

 

Methodical instruction was discussed and adopted at the Department sitting

____on August, 27th___2012. Minute № _1__

Methodical instruction was adopted and reviewed at the Department sitting

__________201_ . Minute № ___