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Health insurance and rise of managed care

In 1986, the US federal income tax system changed marginal tax rates so that the top marginal rate fell from 50 to 33 percent. Given the way that fringe benefits are negotiated, what would you expect to happen to the demand for health insurance as a fringe benefit? Why?
Suppose, as a worker, your health insurance currently allows you to buy whatever prescription drugs you wish for $2 per prescription. In contract negotiations it is proposed to change this benefit to "10-20", that is you pay $10 for generic drugs and $20 for name brand drugs. What would be your reaction by? What would ?economic analysis predict.
Suppose that a company pays its workers $20 per hour and provides and additional $2 per hour worth of fringe benefits, including the basic health insurance policy. Discuss the firm's reaction to state mandate that requires it to expand the items covered in the health insurance policy. What is likely to happen to the number of people employed?
Blue Cross plans typically have practiced community rating. If other insurance firms are seeking healthier patients at reduced rates, what impact will this have on Blue Cross net revenues? Why?
Why is selection bias such an important issue in measuring HMO performance?
Discuss ways that managed care organizations provide lower-quality care that FFS plans? Evaluate this possibility from a societal perspective.
Why is the growth of managed care plans a relatively recent phenomenon? Describe governmental policies and practices that have encouraged managed care organizations and inhibited them.

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Health insurance and rise of managed care:

After the United states changed the marginal tax rates such that the top marginal rate fell from 50 to 33 percent, certain changes are expected to happen on the demand of the health insurance since it is a fringe benefit. The employer-provided health insurance' demand would decrease. A health insurance obtained from a single employer is not taxable (HOFFMAN 2011).

If the health insurance is obtained from an individual's job, the insurance is provided with a discount equal to the rate of the marginal tax. Thus, if there is a drop in the rate of the marginal tax, there is also going to a drop in the discount provided resulting to people becoming less desirable of the insurance provided by their employers. The smaller the tax bracket, the smaller the discount which is provided on health insurance (HOFFMAN 2011).

If my insurance previously allowed me to purchase any prescription drug at 2 dollars and in contract negotiations a change was proposed for the benefit where I would pay 10 dollars for generic drugs and 20 dollars for brand name drugs, my reaction would be on the increased amount of purchasing the drugs. Economic analysis would predict an increase in prices of both the generic and the brand named drugs which is a drastic increase that would prevent ...

Solution Summary

Increases in managed care are thoroughly explored in this solution.