Health care economics
The price of health insurance is defined by the economic text book as the fee for loading or the surplus after subtracting the premium from the expected payout. The price of health insurance can be measured using different ways. For example, as aforementioned, the price of health can be measured by subtracting the premium from the expected payout. Their difference is the price of the health insurance. This price measure is based on load. The next way of measuring it is by using premiums to capture the increase of medical expenditures. The rise of the expenditure indicates that the technology has advanced. The rising premiums are associated with falling coverage. This can be attributed to the fact that, other than reflecting on desired medical expenditures, the premiums reflect on moral hazards. It can also be because of the ever changing of relative value of health insurance in comparison with the medical care that an individual would receive (Getzen and Allen, 247).
In the period between 1950 and 1980, the rapid advances in medical science and technology led to the establishment of medical care. There was a rapid growth of health expenditure, which accounted for 4.6% of the GDP. The price of health insurance was increasing continuously. The relative rate of increase in expenditure was great during the decades between 1950 and 1980. After 1980, the trend changed to 4.1% per year. This was mainly because of the introduction of the Medicare and Medicaid in 1965. The rates of growth of the health expenditure since 1980 decreased. The new technology led to the spread of health insurances, both private and public. Since the prices for health insurance were high, groups, firms and other organizations paid insurance for individuals making it affordable for them (Getzen and Allen, 251).
Adverse selection refers to the behavior of individuals who are vulnerable to high risks to look for health insurance. It also refers to the behavior of those who are in low risks or not vulnerable to any risks to defer from health insurance. When the individuals who are not vulnerable to any disease drop out of the pools of insurance, the act raises the cost of the people in the cover. In turn, this causes many to withdraw from the insurance cover. The ACA addresses the adverse selection by allowing healthy population to transfer money to the insurers of individuals in vulnerable groups (Getzen and Allen, 258).
Medical loss ratio provision of the Affordable Care Act facilitates transparency in the marketplace and helps consumers to buy effective plans, which provide value for the money they spend. Individual or direct, pay segment of 85% will qualify for the medical loss ratio. Small group segment (2 to 50 employees) of 90% and large group segment (51 or more employees) of 86% will qualify for the medical loss ratio. On the other hand, individual/direct pay segment of 75% do not qualify for the medical loss ratio. Small group segment (2 to 50 employees) of 60% and Large group segment (51 or more employees) of 74% will not qualify for the medical loss ratio (Getzen and Allen, 261).
With the MLR, the health insurers are regulated to pay claims, clinical services and other activities that can improve the quality of health care. It is also consumer friendly. The health care costs will be lowered to favor people of all classes and the delivery of services will be improved (Getzen and Allen, 263).
The FDA drug approval process is overcompensating type 2 errors. Health spending is full of dynamics. For example, in 2010, the percentage of Medicare spent for prescription drug costs were 3.9. In 2012 and 2013, it rose to 4.2. The trend is expected to continue with time (Getzen and Allen, 271).
From the year 2006, prescription drug spending was increased to 18 percent. This was after the implementation of the Medical drug benefit. The Accountable Care Act will reduce prescription drug costs in Medicare (Getzen and Allen, 275).
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