The Profitability Of Insurance Premiums In Managed Care Plans
Final Paper
The Profitability of Insurance Premiums in Managed Care Plans
December 20, 2006
The Profitability of Insurance Premiums in Managed Care Plans
This paper will explore how insurance premiums are profitable in the context of managed care plans. Managed care plans use insurance premiums and co-payments as sophisticated methods that are designed to control the behavior of patients and perhaps reduce "moral hazard" (Campbell, Schmitz & Waller, page 6) among enrollees.
According to the reading Financial Management in a Managed Care Environment, "moral hazard" is a theory defined as "the risk that individuals will use more services simply because they pay little or nothing at the time of service." In addition, "morale hazard
applies to situations in which the insured tend to be less careful because they are insured." In other words, the Healthcare system is being abused by stakeholders and patients who use the system haphazardly because it is there. The Healthcare system is seen not only as a safety net for members who are insured, but also as a commodity to be used not necessarily relative to actual need.
Managed care and insurance programs emerged initially offset the cost of health care in the United States by pooling groups of stakeholders together and charging each a proportional amount of the cost for their treatment. Managed care is also a way of reducing moral hazard by reducing the amount of the access patients have to gain services.
Managed care as we may recognize it started in the nineteen sixties (Campbell, Schmitz & Waller, page 4). At that time most citizens received health insurance through work benefits. The elderly and disabled often lost out on many benefits due to incomplete work histories. They therefore did not qualify for services. Medicare and Medicaid and emerged as a result of these inequities. In the nineteen sixties, Medicare was designed to function as health...
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