Insurance Plan Type Research Articles

Perceived Risk: The Link to Plan Selection and Future Utilization

Perceived Risk: The Link to Plan Selection and Future Utilization Abstract Enrollment of Medicare beneficiaries in HMOs may reduce the costs of providing health care but has raised concerns over adverse selection and how to adjust reimbursement levels to compensate for this potential. An adjustment based on an individual's perceived health and financial risk may be more accurate than proposed demographic, prior use of health services or current health status adjusters. Results suggest that those in HMOs may be more sensitive to the extreme cost of hospitalization than those with fee-for-service insurance, and therefore were attracted to the comprehensive care offered by the HMO. In addition, HMO enrollees, face fewer barriers to seeking health care, thus may be higher utilizers in future periods. Introduction In 1985, out-of-pocket health care costs for the elderly were greater in real dollars than before the 1965 Medicare legislation[7]. This phenomenon did not go unnoticed by the elderly. Realizing they were spending more and more of their budgets on health care, they began to look for insurance mechanisms with which to supplement their Medicare coverage. At the same time, the Federal government was also experiencing changes in the health care marketplace. The Federal government has seen Medicare expenses increase from $4.7 billion in 1967 to $64.6 billion in 1984[11]. Th is rapid increase in expenditures prompted the Federal government to expand health care delivery mechanisms for Medicare enrollees beyond the traditional fee-for-service (FFS) system through legislation supporting the enrollment of Medicare beneficiaries in health maintenance organizations (HMOs). These trends at the consumer and the payor level have resulted in the increased enrollment of Medicare beneficiaries in HMOs. In 1981, 595,000 Medicare beneficiaries (a little more than 2 percent) were enrolled in capitated systems. In 1985, the number of Medicare beneficiaries enrolled in HMO/CMP and group practice prepayment organizations reached 1,117,000 or 3.7 percent of Medicare enrollees[11]. The initial contracts between the Health Care Financing Administration (HCFA) and HMOs were structured on a cost basis. This type of contract was attractive to HMOs because it limited their risk and thus encouraged them to enroll Medicare beneficiaries. In 1985, HCFA began to move away from the signing of cost contracts with HMOs to the establishment of risk contracts [13]. Under the initial risk contracts the HMOs enrolling Medicare beneficiaries were reimbursed at 94 percent of the AAPCC (Adjusted Average Per Capita Cost). This structure gave HMOs financial incentives to provide services at lower costs (one of their claimed advantages over a fee-for-service practice). At the same time, these contracts would lower the level and increase the certainty of Federal expenditures for health care. Recently, the General Accounting Office (GAO) has recommended lowering the multiplier for the AAPCC to 89 percent[15] thus shrinking the average reimbursement and creating further pressure upon providers (HMOs) to deliver medical services at a lower rate or to exit the Medicare HMO market. Problem Statement The move to risk contracts for HMOs creates a number of concerns for the HMOs operating under these terms. The primary concern is whether or not adverse selection will occur. Adverse selection occurs when the high risk/high cost members of a population tend to disproportionately enroll in one type of insurance plan[1]. Recently, HMOs have acted as if adverse selection has occurred in their Medicare population. For example, Av-Med Health Plan Inc. in Florida, Maxicare in California, and Choice Care in Cincinnati have all withdrawn from Medicare risk contracts[14]. Their actions may be in response to adverse selection by enrollees which resulted in the costs of providing services in excess of reimbursement levels. …

Insurance protection: Assessing your needs: Insurance programs abound, and as a student or recent graduate, you are a susceptible consumer. Being informed is the best policy

Real financial security is difficult to achieve without adequate insurance coverage. Yet, with the many types of insurance and different plans offered, it is often difficult to know what to buy. Because of the vast scope of the subject, we will discuss only three basic types of insurance coverage here — disability income, life, and health — the types that are most important to students and recent graduates. Other forms of insurance protection, such as property/casualty, may be subjects for another article.