3.1.1 Risky Business

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En provenance du cours de University of Minnesota

Healthcare Marketplace

329 notes

University of Minnesota

Healthcare Marketplace

329 notes

Cours 1 sur 5 dans Specialization Healthcare Marketplace

In this course in the Healthcare Marketplace specialization you will identify, define, and describe potential business and public policy solutions to the challenges facing society’s growing demand for health services. Students will master a body of knowledge on the health care sectors major components through reading and reflection. Healthcare has many different cultural components that will be discussed as historic trends as well as future demographic challenges. You will understand diverse philosophies and cultures within and across societies as they relate to healthcare. This outcome is particularly critical because of the tradeoffs needed to be assessed as medical technology advances faster than budgets and perhaps cultures are sometimes willing to tolerate. At the end of the day, you will gain an appreciation for the role of creativity, innovation, discovery, and expression across disciplines in the development of new medical care solutions through and examination of the physician, medical technology and financing sub-sectors of the health economy.

À partir de la leçon

INSURANCE MARKET

In this module you will learn about the health insurance market. Since the mid-20th century government and private health insurance has been the primary funding vehicle of health care in the industrialized world. The long story of US and other nations health reform will be examined as well. The take-away messages from this module are the health insurance market is a unique form of insurance. Furthermore, its design has been greatly impacted by government intervention over a 100-year arc.The skills gained from this module are an understanding risk and insurance as well as the technology platforms used by the insurance industry to measure cost and quality. Key knowledge for use in the capstone is an understanding health insurance reimbursement and the issues faced by insurers when they consider funding a new medical technology for patient use.

Module 3 Overview2:07

3.1.1 Risky Business5:03

3.1.2 Utility of Wealth9:24

3.1.3 How Does Insurance Work?6:45

3.1.4 Moral Hazard and Adverse Selection7:22

Rencontrer les enseignants

Stephen T Parente
Professor
Carlson School of Management, Department of Finance

This is the healthcare marketplace specialization,

healthcare marketplace overview.

I am Steve Parente and this is module 3.1.1, risky business.

So the concept of risky business,

what we are really talking about is making decisions under uncertainty.

And by uncertainty what we are referring to is a situation

where more than one event may occur, we just don't know what that event might be.

So if we look at our first illustration here, example one, we had a computer and

you know, inside that computer is a wonderful chip most likely from Intel.

Intel puts out brand new chips all the time.

You're investing in Intel, you're hoping to make some more money, you're not quite

sure whether or not you're going to have a good investment from Intel or

bad investment depending upon how it's received into the market.

You make a gamble, there's a sense of what that might be,

and then you sort of play off and see where that would go.

Another example is a little more personal, closer to home.

You have an opportunity to get a flu shot or not in the fall.

You want to make sure that you don't get too far under the weather.

You know you might be the type of person where you just don't get sick that often,

but for all you know there's a flu strain that comes around, there's a bunch of

people in the office, they all have sick kids, they all want to breathe on you.

And so you know you could be very happy and basically not have anything happening

and all, or you could be very sad and infirmed because you did not get your flu

shot, but granted there is no guarantee that flu shot will actually do exactly

what it needs, but more often than not it can actually do some good for you.

So these are essentially different choices you make all the time and

it's not just the binary choice, you can obviously a whole range of choices, and

these are the decisions that you've faced.

Now, to actually be a little more structured

that we have this concept of risk.

And risk basically is a probability, a probability

that essentially somewhere between zero to one

you will have some chance at something good or bad will go wrong.

In terms of insurance, we usually talk about something bad going wrong.

And so if you think about flipping a coin, that usually translates into

a probability of 0.5, giving you some sense of you know,

heads or tails that things could go wrong.

And so one thing that we try to do in insurance is to figure out what that

probability is actually going to be, and by getting that probability estimate,

whether or not it's you know 0.1, something can go wrong.

That's actually the mortality rate for folks that are older.

You can flip it around and say, you know,

you have 9% chance of having really healthy outcomes past the age of 60.

These are all very specific point estimates that are trying to give

an actual parameter to the concept of risk.

And that's really core to insurance, insurance needs to essentially have

those numeric estimates, and they are just estimates, to be able to make

the actual models for insurance companies operate.

Now, when we think about the cost of risk, which is another major concept,

what we have to understand is that some people are willing to be risk takers.

So you can have someone here who loves to ski.

This is my own skiing thing, and are going downhill,

and they're going to be really happy but they could run into a tree.

Now the reality is that skiing actually, even snowboarding,

is sort of a risky operation.

If you're a sky diver that's like one of the worst things on the survey,

that's my idea there of a little there skydiver going down.

So, those things generally have a lot of risk that's associated with it.

If on the other hand, you just want to say, sit in a chair, that's my chair,

that's not really that risky a behavior, and you'll probably be okay with that.

Now when we think about these concepts of risk, what we recognize is that risk will

depend a lot upon your situation, how you grew up, how much money you have, and

then, potentially, how much money you have will change over a period of time.

Basically, you know, if you're really young and you're happy and

you're really thrilled about life, you might have a net worth of say,

I don't know, $5,000, if a beat up car and

a bunch of books and some bookcases you have along, and it's like age 25.

And you get to age 65, you might be sitting on a pile of cash and

your net worth could be maybe $1 million.

You might have different levels of risk aversion,

as we're going to talk about the futility of wealth schedules in our next module.

So this concludes our mod on risky business.

The next module will take about how that relates with the futility of wealth

schedule.

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