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Coinsurance
Cost Sharing Policies
• Service benefit policies use three cost-sharing features, sometimes in concert: the deductible, the coinsurance rate, cost caps and the stop loss amount
Deductible
• The deductible is the amount that an individual must pay before the insurance company pays anything.
• The deductible is usually set annually; the typical deductible in 1991 was about $200 for an individual and $500 for a family.
• Consumers pay the full price for care consumed under the deductible.
Coinsurance rate
• The coinsurance rate is the percentage of the total bill above the deductible that a patient pays.
• Nearly all indemnity plans had a coinsurance rate of 20 percent.
Stop loss
• The coinsurance is paid until the patient reaches the stop loss - the maximum out-of-pocket payment by the person in a year.
• A typical stop loss in an indemnity policy was about $1,000 to $1,500 in a year.
Caps
• In addition to these features, many policies impose further cost sharing through caps on various types of expenditures.
• For example, policies may permit 8 mental health visits per year, or have a $1 million lifetime limit on overall medical expenditures.
• Such provisions discourage use
Cumulative Individual Payments
Total Payment
Patients Cost
Stop-loss
Deductible Medical Expenditure
Individual Payment
Insurer Payment
Insurer Payment
Coinsurance
Risk-sharing features of indemnity insurance policies, 1991
Characteristic Average/percent
DeductibleIndividual 205$
Family 475$
Coinsurance rate
<20 percent 13%
20 percent 78%
>20 percent 4%
Stop loss
<500$ 21%
500$ - 1000$ 30%
1000$ - 2000$ 32%
>2000$ 17%
Maximum lifetime benefit - individual
<250,000$ 9%
250,000$ - 1,000,000$ 6%
>1,000,000$ 85%
Optimal insurance given moral hazard
Author Optimal policy
Feldstein and Friedman (1977) 58 percent coinsurance rate
Buchanan, Keeler et al. (1991) 200$ deductible;25 percent coinsurance rate
Newhouse et al. (1993) 200$ to $300 deductible;25 percent coinsurance rate;
1,000$ stop loss (assumed)
Manning and Marquis (1996) 25 percent coinsurance rate;>25,000$ stop loss
Blomqvist (1997) Cost sharing declines from 27%at roughly $1,000 of spending to 5%above roughly $30,000
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