Financing Healthcare

The first financing mechanism of healthcare is health insurance. This helps in distributing risk. With an individual, health is uncertain, but with group statistics health is a little more predictable. This insurance pays less than the total loss incurred by levying out-of-pocket or even direct costs on the patient. This is due to the fact of “moral hazard”. Moral hazard is the temptation to use the insurance when it is not really needed. The issue with this insurance for the future is adverse selection and competition. This could cause major claims for more liberal plans because the healthier people will defect to a lower-cost alternative plan. Some come with premiums which are based on demographic characteristics and some people think these premiums are too high as it is. If these premiums and the cost of care keep raising these people will find a cheaper way and if not then they might decide not to get any insurance at all and decide they don’t need to be seen. What does that do? They will in the long run develop chronic illnesses or diseases if not treated.

The second financing mechanism of healthcare is private health insurance. This type of insurance helps in protecting persons against large medical bills and expenses associated with routine medical care. In 1998, 84% of Americans were covered by such insurances. This insurance covers a wide array of services but has to be prepaid in order to be treated. This premium does not translate into capitated provider reimbursement and tight prospective budgeting which is the reason why this type of insurance will have issues in the future. The cost containment will be mixed due to legislative and economic incentives that could possibly be opposed sometimes.

The third financing mechanism of health care is social health insurance. This type of insurance serves people that have been hurt on the job (compensation insurance) and the elderly or disabled people (Medicare). Worker’s compensation is offered in all 50 states but to some extent. It provides cash replacement of a portion of wages lost due to injury and pays all if not most of the medical care needed. Medicare utilizes an indirect pattern of finance and patients have to access their providers independently. They see that the providers are