coinsurance

You are currently browsing articles tagged coinsurance.

Effect of delayed reimbursement on utilization of medical services

December 19, 2011 in Health Care in Developing Nations, Health Insurance, Optimal Ins (Theory) | No comments

A recent paper by Hai Zhong (2011) finds that health insurance that provides immediate reimbursement for health care services significantly increases the likelihood of patients seeking outpatient treatment in China compared to reimbursement beneficiaries with a delay. China isn’t the only country where insurance companies provide delayed reimbursement. In fact, in France patients pay the full cost of physician visits up front and only later are reimbursed 70 percent of the cost.

Why would the delayed reimbursement make a difference? I can think of three reasons.

  1. Liquidity Constraints.  Some individuals may not be able to afford the payment.  Poor individuals may literally not have the capital to pay for these services up front.  Getting loans from formal institutions (e.g., banks) or informal ones (e.g., friends and family) may be costly either in terms of interest of obligations to family and friends.  Even if an individual is rich, acquiring extra money may be costly (e.g., trip to ATM, ATM fees, interest on credit card).
  2. Probability of Non-Payment.  Although may policies are written where payment is assured, in practice reimbursement rates will not be 100 percent.  For instance, individuals could fail to submit the correct forms for reimbursement, they could move addresses, or the patient could die.  In addition, patients may have some uncertainty surrounding the benefits covered and thus they may not be 100% sure that they will receive reimbursement.  Beneficiaries may not trust their insurance plan; they may assume it is trying to cheat them and thus with some non-zero probability the beneficiary will not get paid.
  3. Reflection of value.  Even if a patient is rich and payment probabilities are 100%, the patient may still be less likely to use the service if they don’t need it if they realize the true cost.  Alternatively, patients who realize a service is valuable may also be more likely to use it.
Source:

Tags: , , , , ,

Is health care demand elastic?

July 22, 2009 in Economics - General, Health Insurance | 1 comment

Most experts believe that health care demand is fairly inelastic. If you are sick, you will not be very price sensitive. There are exceptions to this rule (e.g., elective surgery such as plastic surgery, purchases of eyeglasses) but most studies find that patients are fairly insensitive to changes in health care prices. For instance, the RAND Health Insurance Experiment found that the price elasticity of medical expenditures is -0.2.

An working paper by Amanda Kowalski claims that medical care and prices have an elastic relationship. “My main results show that the price elasticity of expenditure on medical care is -2.3 across the .65 to .95 quantiles of the expenditure distribution, with a point-wise 95% confidence interval at the .80 quantile of -2.5 to -2.0. Although I allow the price elasticity estimate to vary with expenditure, I find a fairly stable elasticity across the estimated quantiles. This estimate is an order of magnitude larger than the RAND estimate of the mean elasticity of -0.2.”

Kowalski uses claims and patient level data from a large employer’s database. Since price and quantity are often correlated, one needs a random shock to quantity in order to identify this elasticity. For an instrument, Kowalski uses whether or not a family member has an injury. When a family member has an injury, this will not affect the medical expenditures of other family members (assuming they are not also injured). However, an injury will use up a large portion of a family’s deductible and thus lower coinsurance rates from 100% (during the deductible) to 20% (after the deductible is used up).

One may worry that sickness risk is correlated among family members. For instance, if you investigated a family of extreme snowboarders, the probability any one person is injured is high. It is possible that we can observe one person’s injury in the data which will be correlated with a high probability of injury for their spouse and child. If the other family members are covered under an employed spouse’s health plan, the injury may not show up in the data, but some medical expenditures will.

To check whether or not sorting in mating along the health risk dimension occurs, Kowalski looks at couples who each have their own deductible. Thus, the injury of a partner will not affect their spouse’s coinsurance rate. Kowalski finds that price elasticity in this case is not statistically different from zero and, as predicted, the instrument has little power.

One possible explanation for the large elasticity is that partners may leave the insurance coverage after their spouse gets injured. If their spouse is seriously injured, they may have to stay home to take care of them. However, before leaving their coverage, they may decide to have all of their major medical procedures done. Because the data are only from 2003 and 2004, intertemporal price elasticity could be a problem. Kowalski does find that some evidence that inter-temporal shifting is not driving her results, however.

Tags: ,

Value-Based Cost Sharing

February 4, 2009 in Asymmetric Information, Health Insurance, Optimal Ins (Theory) | No comments

Many policy experts have been proponents of value-based cost sharing.  Under value-based cost sharing, medical care that is seen to provide a higher marginal benefit to the patient will have lower coinsurance rates than medical care with lower marginal benefits.  If value-based cost sharing would be implemented, preventive care should have low coinsurance rates because of the subsequent health benefit.

This seems like a very attractive way to design health insurance benefits, but a paper by Pauly and Blavin (JHE 2008) asks if value-based cost sharing is truly a novel concept.

First, under perfect information, there is no reason to have value-based cost sharing.  In this case, patients should internalize the marginal benefits–now and in the future.  ”When all agents have perfect knowledge of patient illness states and benefits of care, optimal coinsurance should be zero; insurance should take the form of a fixed dollar (indemnity) payment to cover the full cost of care when care is cost-effective, and should pay nothing in circumstances in which care has benefits that fall short of cost.”

Under asymmetric information, however, patients may make naive decisions.  For instance, patients may decide to forgo preventive care because the do not realize its long-term health benefits.  Coinsurance rates must still be designed to balance the twin goals of risk sharing and averting moral hazard.  Lower coninsurance rates will incentivize patients to get needed care.  However, designing coinsurance rates solely based on the marginal benefit of the procedure may not be optimal once we take into account that patient moral hazard may increase medical care above optimal levels.  

Pauly and Blavin also note that under asymmetric information, “it may now be the more price responsive service that should get the cost reduction, since lowering its cost sharing will have a larger effect in terms of moving it closer to the ideal level than would be the case for a less responsively demanded service.  That is, if patient ignorance resulting in underestimation of benefits from care in a given setting is severe enough, the direct relationship between price responsiveness and optimal cost sharing should be reversed.”

Yet just because value-based cost sharing can work does not mean that is the only solution.  Instead of spending money to reduce coinsurance rates, insurance companies or policymakers could spend money to inform consumers of the true benefits and costs of different types of medical care.  This is especially true of medical services that are not price responsive; where the only way to convince patients to undergo these potentially uncomfortable procedures is to increase information dissemination.  For instance, most people would prefer not to undergo a colonoscopy even at a price of 0.  The only way to convince patients that the procedure is needed is by information dissemination.

Value-based cost sharing is not a magic bullet, but may be a useful technique in the presence of asymmetric information.

Tags: , , , ,