To what sorts of customers would an insurance company offer a policy with a high copay? What abo

To what sorts of customers would an insurance company offer...

Key Concepts

Risk Segmentation

Risk segmentation is the process by which insurers differentiate among various groups of customers based on their expected usage or risk levels. This approach allows companies to design specific policies that match the anticipated needs and financial profiles of different segments, ensuring that healthy, low-risk customers and high-risk individuals are offered plans appropriate to their likelihood of filing claims.

Premium and Copay Trade-Off

The premium and copay trade-off is a fundamental concept in insurance policy design where a lower premium is often paired with a higher copay, while a higher premium is combined with a lower copay. This structure is meant to balance the insurer's burden of risk and the cost of accessing services, catering to customers based on their expected frequency of use: healthier individuals may favor lower monthly costs and are willing to pay more out-of-pocket occasionally, whereas those expecting higher usage prefer a plan with a higher premium but lower service costs.

Adverse Selection

Adverse selection refers to the tendency of individuals with higher expected health care usage to choose more comprehensive insurance plans while healthier individuals opt for plans with fewer benefits. By structuring policies with varying premiums and copays, insurers aim to mitigate the risks posed by adverse selection, ensuring that each plan attracts a balanced mix of low-risk and high-risk customers.

Transcript

00:01 Hey everyone.

00:01 Today we're solving problem number 22 from chapter 16 of the textbook, which is a critical thinking question asking us to which policy or who which types of customers would need a policy with higher co -pay and then which would need higher premium with low co -pay.

00:20 So essentially the insurance companies for healthcare, what kind of plan would they offer to what kind of people? so let's read this little section from your textbook.

00:30 It says if their insurance premiums are set at actually fair levels so that people end up paying an amount that accurately reflects their risk group, certain people will end up paying considerable amounts.

00:41 For example, if health insurance companies were trying to cover people who already have a chronic disease like aids or who are elderly, they would charge these groups with very high premiums for health insurance because their expected health care costs are quite high.

00:54 So those who are going to get a high premium are going to be people who need to very regularly go visit the doctor because they don't want to have to pay on that high co -payment every time.

01:06 So typically you have higher co -payments with lower premiums and deductibles.

01:12 And then with higher premium healthcare plans, you have lower co -pays and lower deductibles.

01:18 So for a high premium healthcare plan, they mention people who have chronic diseases.

01:27 So customers with chronic diseases like aids are going to want to probably get a high premium health plan.

01:37 The elderly, because, you know, their life is most at risk, like diseases.

01:48 The elderly, pregnant women, because, you know, that pregnancy lasts nine months.

02:13 So that's a substantial amount of time for women to have a plan with higher preemptive.

02:27 Because they're going to be making visits quite often.

02:31 Pregnant women, elderly, pretty much, you know, if you have like a big issue, like a big surgery, it's like athletes have tommy john surgery a lot of times...

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