Coinsurance Cost Sharing Policies Service benefit policies use
Coinsurance
Cost Sharing Policies • Service benefit policies use three costsharing features, sometimes in concert: the deductible, the coinsurance rate, cost caps and the stop loss amount
Deductible • The deductible is the amount that an individual must pay before the insurance company pays anything. • The deductible is usually set annually; the typical deductible in 1991 was about $200 for an individual and $500 for a family. • Consumers pay the full price for care consumed under the deductible.
Coinsurance rate • The coinsurance rate is the percentage of the total bill above the deductible that a patient pays. • Nearly all indemnity plans had a coinsurance rate of 20 percent.
Stop loss • The coinsurance is paid until the patient reaches the stop loss - the maximum out-of-pocket payment by the person in a year. • A typical stop loss in an indemnity policy was about $1, 000 to $1, 500 in a year.
Caps • In addition to these features, many policies impose further cost sharing through caps on various types of expenditures. • For example, policies may permit 8 mental health visits per year, or have a $1 million lifetime limit on overall medical expenditures. • Such provisions discourage use
Cumulative Individual Payments Patients Cost Total Payment Insurer Payment Stop-loss Individual Payment Coinsurance Deductible Medical Expenditure
Risk-sharing features of indemnity insurance policies, 1991 Characteristic Deductible Coinsurance rate Stop loss Maximum lifetime benefit individual Average/percent Individual $205 Family $475 <20 percent 13% 20 percent 78% >20 percent 4% <$500 21% $500 - $1000 30% $1000 - $2000 32% >$2000 17% <$250, 000 9% $250, 000 - $1, 000 6% >$1, 000 85%
Optimal insurance given moral hazard Author Optimal policy Feldstein and Friedman (1977) 58 percent coinsurance rate Buchanan, Keeler et al. (1991) $200 deductible; 25 percent coinsurance rate Newhouse et al. (1993) $200 to $300 deductible; 25 percent coinsurance rate; $1, 000 stop loss (assumed) Manning and Marquis (1996) 25 percent coinsurance rate; >$25, 000 stop loss Blomqvist (1997) Cost sharing declines from 27% at roughly $1, 000 of spending to 5% above roughly $30, 000
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