VALUE BASED HEALTH INSURANCE

Author:

Xie, Fan

Area of Honors:

Actuarial Science

Degree:

Bachelor of Science

Document Type:

Thesis

Thesis Supervisors:

David Arthur Cather, Thesis Supervisor
David Arthur Cather, Thesis Honors Advisor
David Arthur Cather, Thesis Supervisor
Dr. Diane Marie Henderson, Thesis Honors Advisor
Ron Gebhardtsbauer, Faculty Reader

Keywords:

value
based
health
insurance

Abstract:

Many of the current strategies used to combat the increasing health care costs are plans which shift more costs to the patient. These strategies try to reduce the excessive spending on health care due to moral hazard. While effective at controlling costs, these plans have negative health consequences. Due to the increased cost sharing of these plans and the downward sloping demand curve, patients reduce their utilization of health care and are more likely to underutilize necessary health care. The underutilization suggests that the demand curve for health care is more inelastic than it is perceived. Under a new model which dictates the actual demand curve to be perfectly inelastic, moral hazard can be viewed as beneficial. Value based health insurance is based on this new model. In value based insurance, cost-sharing is removed or reduced for health services deemed to be highly beneficial. These plans have been demonstrated in several studies to effectively control costs while increasing the overall health of the members. They are very costly to implement but they help to reduce hospitalizations and emergency room visits for people suffering from chronic diseases. Value based plans are currently being offered by health insurance companies, but the reduced cost sharing are limited to pharmaceuticals and preventive services because there is evidence to suggest spending in these areas are very cost effective. More evidence is necessary in order for value based insurance to be applied to other medical services.