Respond to discussion post:
Discuss the impact of co-pays and deductibles on demand for health care services for insured individuals.
Co-pays vary between cities, states countries and even continents; they can make or break a company or an individual. If someone is insured and pays for insurance monthly and anytime they need to be seen they have to pay a co-pay, it may deter that particular individual from seeking healthcare depending on that individuals financial situation. In that aspect, the company wins, however if an individual wants to be seen and is financially well off a co-pay should not be an issue, therefor the company loses especially if it’s an expensive visit. Economic theory predicts that co-payment may reduce the individuals demand for health care services by increasing the price paid by the consumer at the time they rendered services. (Houlberg, 2013)
Deductibles are another way to indirectly limit healthcare access by capping it at a certain number. Once an individual caps out and meets the maximum dollar amount allowed, or if they are getting close, they tend to back off the appointments a little bit. However this can cause an adverse effect on less-healthy individuals because by limiting deductibles it inadvertently limits care. Some people are so worried about it they even avoid free services such as mammograms and colonoscopies, mainly because they could be uneducated and not realize these service are free. Without receiving these free services/tests it could potentially lead to more costly services. (Maas)
4. What is adverse selection? How do insurance companies minimize its impact on premiums?
Adverse selection is a situation in which individuals of different risk types decide whether or not to buy insurance (Economics, Chapter 16). People who are may have a high-risk job or at more risk to get a type of cancer is more likely to want health insurance but individuals who are considered low risk are less likely to voluntarily buy health insurance.
Health insurance from an employer gives generous employer premium subsidies that lead to higher participation rates, which leads to a larger risk-pool (UMGC, n.d.).
Expert Solution Preview
Co-pays and deductibles have a significant impact on the demand for healthcare services among insured individuals. The financial obligations associated with co-pays and deductibles can influence the decision-making process of seeking medical care. This answer will discuss the effects of co-pays and deductibles on the demand for healthcare services and how insurance companies attempt to minimize adverse selection.
Co-pays are out-of-pocket payments made by insured individuals at the time they receive healthcare services. The cost of co-pays can vary depending on factors such as location, insurance plans, and the specific procedure or service being provided. The imposition of co-pays can potentially deter individuals from seeking necessary healthcare services, particularly for those who face financial constraints. If the co-pay is substantial, individuals may choose to forego or delay seeking medical care, impacting the demand for healthcare services.
Similarly, deductibles are a financial obligation that individuals must meet before their insurance coverage kicks in. Once the deductible is reached, the insurance company covers a portion or the full cost of subsequent healthcare services. The presence of deductibles may indirectly limit individuals’ access to healthcare, especially if the deductible amount is high. This can result in individuals being reluctant to schedule appointments or undergo certain preventive screenings to avoid incurring additional costs, which may negatively impact their overall health and lead to higher healthcare expenses in the long run.
Insurance companies attempt to minimize adverse selection, which refers to the situation where individuals with higher risks are more likely to seek insurance coverage, while those with lower risks may choose to forgo insurance altogether. This can result in higher costs for insurance companies if they must cover more high-risk individuals. To mitigate adverse selection, insurance companies implement various strategies, such as employing risk assessment models and offering incentives for healthier individuals to enroll. Additionally, employer-sponsored health insurance often includes generous premium subsidies, encouraging higher participation rates among employees and resulting in a larger risk pool. By having a larger and more diverse risk pool, insurance companies can better distribute the costs of healthcare services among a broader group, which helps to stabilizing premiums.
In conclusion, co-pays and deductibles can influence the demand for healthcare services among insured individuals. The financial burden associated with these costs may lead some individuals to avoid seeking necessary care, potentially compromising their health. Insurance companies aim to minimize adverse selection by implementing strategies to encourage a diverse risk pool and stabilize premiums.