Assessment 2-4

The Market for Health Insurance

Production Function

Identifies how various inputs can be combined and transformed into a final output.

Diseconomies of Scale

An increase in all inputs results in a less than proportionate increase in output. A state which occurs when

long

–

run average costs increase to the poi

nt where inefficiency results.

Increasing Returns

Occurs when an increase in all inputs results in a more than proportionate increase in output.

Cost Function

A relationship that measures the total costs of a particular provision of services.

Community Rat

ing

Applies when each member of an insurance pool pays the same premium per person or per family for the

same coverage.

Adverse Selection

Exists when people with high risk health

–

related characteristics increase the total cost of health insurance

provided.

Experience Rating

Occurs when insurance companies base premiums on past levels of payouts, which is often done for car or

homeowners insurance.

Private Insurance

Usually supplied by providers for profit, although it can also be offered by public bodies or by nonprofit

organizations.

Moral Hazard

Refers to the risk of an individual’s behavior being influenced by potential financial gain.

Managed Care Organizations

G

roups providing coordination and delivery of services to improve quality and outcomes while containing

costs. These types of plans typically involve contractual arrangements with providers, and enrollment on

behalf of consumers.

Social Insurance

A plan in

which taxpayers (either individual or corporate) fund health care services which are distributed

by the government.

The Market for Health Insurance

Production Function

Identifies how various inputs can be combined and transformed into a final output.

Diseconomies of Scale

An increase in all inputs results in a less than proportionate increase in output. A state which occurs when

long-run average costs increase to the point where inefficiency results.

Increasing Returns

Occurs when an increase in all inputs results in a more than proportionate increase in output.

Cost Function

A relationship that measures the total costs of a particular provision of services.

Community Rating

Applies when each member of an insurance pool pays the same premium per person or per family for the

same coverage.

Adverse Selection

Exists when people with high risk health-related characteristics increase the total cost of health insurance

provided.

Experience Rating

Occurs when insurance companies base premiums on past levels of payouts, which is often done for car or

homeowners insurance.

Private Insurance

Usually supplied by providers for profit, although it can also be offered by public bodies or by nonprofit

organizations.

Moral Hazard

Refers to the risk of an individual’s behavior being influenced by potential financial gain.

Managed Care Organizations

Groups providing coordination and delivery of services to improve quality and outcomes while containing

costs. These types of plans typically involve contractual arrangements with providers, and enrollment on

behalf of consumers.

Social Insurance

A plan in which taxpayers (either individual or corporate) fund health care services which are distributed

by the government.