Coinsurance

Consider a health insurance plan that covers hospital care. To date, the plan has allowed its members to use hospital care at no out-of-pocket cost. Now the plan institutes a 10% coinsurance payment for the first $10,000 of hospital billings per member per year.

Describe how raising the coinsurance rate from 0% to 10% will affect

1. members out-of-pocket payments for hospital care

2. the use of emergency hospital care by members who remain enrolled in the health plan

3. the use of elective hospital care by members who remain enrolled in the health plan1

4. the health plans actuarially fair insurance premium to cover hospital care

5. the expected use of hospital care by new members that the health plan will attract

B. Hospital Merger

Consider a small, geographically isolated area that is served by only two hospitals, which are both for-profit. At present, the two hospitals have no relationship with each other and therefore behave in an environment of perfect competition. Now the two hospitals merge, i.e., they begin operating as a single organization.

Describe how the merger will affect

6. the prices for hospital care that the merged entity can negotiate with health insurance plans

7. the wages the merged entity can negotiate with the hospital workers who live in the area

8. the merged entitys profit

9. the merged entitys quality of care

10. the actuarially fair insurance premium to cover emergency hospital care1