Private Health Insurance and Managed Care




Health insurance plans receive premium dollars from buyers who may be employers, groups, or individuals on a prepaid basis in return for a promise to provide payment for covered healthcare services when needed. Payments for those services are typically made directly to the provider. Health plans must make a profit to remain in business. To earn positive profits, health plans must receive payments from subscribers greater than payments for healthcare providers. They must also cover their own internal administrative costs. There are primarily four functions that health plans perform to justify their position in the healthcare marketplace: underwriting of risk, utilization review, claims administration, and marketing. 


You have received a consulting contract with a health insurance company to help identify ways to reduce payments to healthcare providers for healthcare benefits of the plan members.

  1. Prepare an initial brief report identifying some possible methods that may be useful in cutting costs. 
    1. Keep in mind that healthcare benefit cost can be expressed as the product of utilization and price, which is the volume of services provided times the price paid for those services.
    2. What are the possible methods useful in decreasing utilization?
    3. What are the methods useful in reducing prices paid to providers? 

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