Essay on "Relationship Risk Insurance"

Essay 8 pages (2350 words) Sources: 5

[EXCERPT] . . . .

Using this information management is able to determine how to charge for its services. The charges will put into consideration the different covers that individuals have and also provide different services based on the covers. From the empirical measurements, management can also establish the number of people who are taking up covers and their income levels. This information will assist them in decision making to ensure that they can provide covers to the people who have the greatest demand. The information will also indicate which covers are most popular, and will allow the management to focus on promoting other covers to the same consumers. There might also be consumers who can afford better covers, but they are using cheaper options. With this information the management can chose to advise the consumer on upgrading in order to receive better services at a minimal fee.

Approach that would mitigate issues in measuring health care demand

Measuring the demand of health care is faced with many difficulties. This is because there is no recognized method that can be used to determine when people would fall sick, or what they might be ailing from Finn & University, 2007.

Therefore, determining the demands for health care becomes difficult and all that health care facilities can do is prepare for anything. There are many variables that one has to consider when measuring health care demand. The variables are normally external to the health sector. There is also the difficulty in predicting any correlations in ssupply and demand of health care services. Another challenge with measuring demand is that the use of historical data may be unavailable, or the data is not sufficient for comparison purposes. Another issue in measuring health care demand is that not all concerns raised by people will be heard. The concerns raised by well off people will be listened to, but not the low income levels.

The best approach for mitigating these issues is using a projection methodology that will measure demand based on the fulfillment of certain targets. Using this approach one will be able to gain various analytical and programmatic advantages, which would not have been possible with other methodologies. This approach will allow for the extrapolation of historical data, combined with actual current demands for health care. Comparing the differences will allow one to determine the rise of health care demand, and predict when it is likely to occur. The current lifestyles that people are living make them prone to sicknesses. Using this approach one can plot the current lifestyle with the past lifestyle and determine how to measure demand in the future. This approach will reduce the external variables that affect health care demand, which would allow for proper measurements for demand.

Relevance of the lemons principle

The lemons principle occurs when there is information asymmetry between the involved parties of a transaction Mankiw, 2009.

The lack of having the same degree of information that is necessary in making an informed judgment, leads to the lemons problem. This problem is mostly apparent in areas like insurance. The lemons principle was popularized by Akerlof in 1970. Akerlof provided an example of used car market. In this case the buyer does not know for sure the value of the used car, and would only be willing to pay the average price, which is obtained by analyzing the price of a new car and a used car. This average price would make the used car seller to benefit since the price would be higher than if the buyer knew the real value of the car.

In the current health care in the United States, the government is providing subsidized health insurance, which is forcing the health care insurance providers to lower their premiums. The citizens are benefitting mostly as they have an option to pay the average price for health care services. Since people do not know the actual costs for health care they rely on the average based on the costs provided by the government. The average price might be higher than the actual cost, but the government has ensured that all the citizens have equal access to health care. The health care insurance providers are at a disadvantage as the citizens are only willing to pay the average price to get covered. The lemons principle is relevant in that it shows the lack or necessary information is causing the citizens to rely on averages. These averages may not favor the health care insurance providers as they are forced to reduce their premiums for them to survive.

References

Dionne, G. (2000). Handbook of insurance. Dordrecht, the Netherlands: Kluwer Academic Publishers.

Finn, M.J., & University, M.S. (2007). Health Care Demand in Michigan: An Examination of the Michigan Certificate of Need Acute Care Bed Need Methodology. East Lansing, MI: Michigan State University.

Mankiw, N.G. (2009). Principles of economics. Cheriton House, North Way, Andover, Hampshire, SP10 5BE: South-Western Cengage Learning.

Paolucci, F. (2011). Health Care Financing and Insurance: Options for Design. London WC1X 8HB: Springer Berlin Heidelberg.

Seog, S.H.… READ MORE

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