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Health Insurance
Prepared and Taught by Lecturer: YIN SOKHENG, Master in Finance
INTRDUCTION
Most consumers of medical care patients pay only a portion of the price charged by the providers of medical care doctors and hospitals. In some cases, consumers pay nothing. An insurer either a private company or the government.
Starting a Health Insurance Company For every 100 people who buy your insurance, 5 people are likely to incur a $61,000 bill, and 95 people, a $1,000 bill. =>Expected total bill = 5($61,000) + 95($1,000)= $400,000 => Take in at least $400,000 in revenue to cover expected cost $400,000
Starting a Health Insurance Company Expected Value: If a person has a 5% chance of incurring a $61,000 medical bill and a 95% chance of incurring a $1,000 medical bill. =>Expected value of persons medical cost = .05($61,000) + .95($1,000)= $4,000 => As long as your premium is at least $4,000, it looks like youll make a profit.
Instructed by YIN SOKHENG, Master in Finance
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Starting a Health Insurance Company Sets a premium: Companies cant cut their premium below their expected cost Actuarially fair premium would equal the expected cost Have to charge more than $4,000 to cover these costs
Starting a Health Insurance Company Price Equals Expected Medical Cost: Suppose that a high-expected cost person has a 9% chance of incurring a $61,000 medical bill and a lowexpected cost person has a 1% chance of incurring a $61,000 medical bill. Pi = EMCi Where Pi is a price, EMCi is the expected medical cost
Instructed by YIN SOKHENG, Master in Finance
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Pi = EMCi
- The price charged to a person will vary with the persons expected medical cost, but the price will not vary with the persons income. - Have to raise your price to $6,400 to break even.
Instructed by YIN SOKHENG, Master in Finance
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The main government program for helping poor people pay for medical care (is Medicaid).
Childrens health Retirees health Low-income families
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Alternative Public Policies for Working Families: Consumer-Driven Health Care: Households would be given a tax incentive to buy highdeductible catastrophic insurance that would keep them paying routine medical bill. Health Saving Account: Contribution to a fund to pay their routine bill called health saving account would be tax-free. Responsible Health Insurance:
a requirement (mandate) that each household obtain health insurance, a refundable tax credit would help them afford it, And provision of fallback (last-resort) insurance
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The tax credit helps households afford insurance. The tax credit would vary inversely with the households income.
Instructed by YIN SOKHENG, Master in Finance
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Government Insurance
The government would pay most or all of each medical bill. The private sector business firms and households would pay taxes to the government instead of premiums to private insurance companies.
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