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Related Experiment Videos

Bad debts and hospital rate-setting.

M V Pauly

    Journal of Health Politics, Policy and Law
    |January 1, 1986
    PubMed
    Summary

    Discounts for insurers based on actual bad debts are inappropriate. However, discounts for policies preventing bad debt are equitable and efficient, though less than the full averted amount.

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    Area of Science:

    • Health economics
    • Insurance market analysis
    • Public policy

    Background:

    • Blue Cross plans advocate for discounts based on insurers' bad debt experience.
    • Existing economic frameworks do not adequately address the nuances of bad debt in insurance pricing.

    Purpose of the Study:

    • To critically evaluate the economic rationale for mandatory insurer discounts tied to bad debt.
    • To determine the appropriate basis for discounts on insurance policies that mitigate bad debt.

    Main Methods:

    • Economic analysis of equity and efficiency principles.
    • Examination of insurer incentives and subsidies.
    • Theoretical modeling of discount structures.

    Main Results:

    • Discounts for actual bad debts are economically unsound on both equity and efficiency grounds.
    • Policies that avert bad debt warrant discounts, but these should be less than the total bad debt avoided.
    • The optimal discount is linked to the subsidy required to encourage the purchase of debt-averting coverage.

    Conclusions:

    • Mandatory discounts for actual bad debts are not economically justified.
    • A nuanced approach to discounts for preventative insurance policies is necessary.
    • Policy design should consider the subsidy required to promote debt-averting insurance coverage.

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