Pure premium refers to that portion which is used to pay the probable losses. It refers to the amount that an insurer is supposed to pay for covering the claims. This amount or cost also included the cost of administrations or the investigation (Sukoon et al, 2018). Pure premium is a part of the whole premium. Pure premium is calculated by adding all the losses and the expenses that have loss adjusted over a period that is given. After finding the losses, that number is divided by the units of exposure which gives pure premium.
Employer purchased insurance of health results in more comprehensive health cover as the insurance is not taxed due to which high earners would like to put in more dollars in the insurance for more health comprehensive insurance (Emanuel, Glickman & Johnson, 2017). This will reduce their income and they will not be pushed into higher tax brackets. Due to this employees invest their income in employer purchased insurance and buy more comprehensive health insurance. This is the reason that employer purchased insurance of health results in more comprehensive health coverage than other health insurance. It is a method of saving the tax for the employees.
Premiums that are paid to employment-based health insurance are excluded from payroll taxes. This exclusion saves workers around $250 billion a year. Lowe sharing of cost makes consumers less sensitive to the prices and promotes medical services that are not of much value. Capping the tax exclusion will help in moving towards a system that is equitable and efficient. A study by Urban Institute depicts that if a cap is set at 75th percentile of premium and other benefits related to medical then employers will be able to produce $264 billion and preserve 93% of the tax subsidies (Burman et al., 2017). Employers will have an incentive to continue to provide the coverage and since the cap will be at 75th percentile employees will have a reason to invest. Yet excessive investment will bring in tax. Thus capping is the best solution for health insurance.
Adverse selection refers to a situation where insurance company extends the coverage of insurance of the applicant whose risk that is actual is higher than the risk that is known by the insurance companies (Lauremann & Wolinsky, 2106). The companies suffer effects that are adverse because of the offering cost of coverage as than appropriate risk exposure is not reflected. For protecting themselves from adverse selection insurance companies are required to follow three principals. The very first is to identify the risk accurately and quantify it considering the lifestyle choices whether they will increase or decrease the risk level. The next is to have a well functioned system to verify the information of the insurance applicants. The third is to place the limits or the ceilings on the total exposure of financial risk. The premium will increase if the government prohibits insurers from adverse selection.
Community rating premiums are based on the rating of community allocated risks that are distributed evenly across the community. It means that everyone in the community pays the same regardless of gender or age or health or wellness (DiGiorgio et al, 2017). While inexperience related premiums, premiums are adjusted based on the history of health for those who are getting covered. In these premiums are lower for the healthy individuals. Community ratings are adjusted according to the whole community which means that consumers can't deny the coverage of insurance that is extremely high. The insurance company will pick high-risk people and increase the premium that in turn will be borne by all the community members.
Increased in health expenditure improved the development of medical technology. More money was put into research to find the cure that led to the development of technology in the field of medicines (Kehaan et al, 2016). On the other hand, studies have shown that when the spending on medical increases then a reasonable value is derived. Improvement in technology is increasing the cost but at the same time, it is decreasing the cost that will occur in the future so development is important for health care even if it means that one has to pay more today.
Burman, L. E., Toder, E. J., Berger, D., & Rohaly, J. (2017). Economic and distributional effects of tax expenditure limits. The Economics of Tax Policy, 109-144.
DiGiorgio, A. M., Mummaneni, P. V., Virk, M. S., & Sharan, A. D. (2017). Subsidizing the sick: How community rating works. Clinical Spine Surgery, 30(10), 457-458.
Emanuel, E. J., Glickman, A., & Johnson, D. (2017). Measuring the burden of health care costs on US families: The affordability index. Jama, 318(19), 1863-1864.
Keehan, S. P., Poisal, J. A., Cuckler, G. A., Sisko, A. M., Smith, S. D., Madison, A. J., ... & Lizonitz, J. M. (2016). National health expenditure projections, 2015–25: Economy, prices, and aging expected to shape spending and enrollment. Health Affairs, 35(8), 1522-1531.
Lauermann, S., & Wolinsky, A. (2016). Search with adverse selection. Econometrica, 84(1), 243-315.
Sukono, R., Lesmana, E., Wulandari, R., Napitupulu, H., & Supian, S. (2018). Model estimation of claim risk and premium for motor vehicle insurance by using the Bayesian method. In IOP Conf. Series: Materials Science and Engineering (Vol. 300, p. 012027).
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