This presentation asks fundamental questions underlying insuring drugs and managing pharmacy benefits.

2. THE PURPOSE OF HEALTH
INSURANCE IS TO MANAGE…
As described in the presentation -- http://www.slideshare.net/dholdford/why-insure-health-care

5. PERSON PAYS
PREMIUM
PERSON FOR INSURER
PAYS A PROTECTION
SMALL, FROM
CERTAIN POTENTIAL
INSURER WRITES
A POLICY

8. FOR EXAMPLE

10. GROWING OLD IS NOT USUALLY
INSURABLE BECAUSE IT IS NOT…

13. GROWING OLD IS INEVITABLE
AND GRADUAL

14. AND WE CAN SAVE MONEY, TAKE CARE
OF OURSELVES, AND DEVELOP PERSONAL
NETWORKS TO HELP US IN OUR OLD AGE

16. INSURABLE HAZARDS ARE TYPICALLY
UNEXPECTED AND/OR SUDDEN

18. LIKE WITH AN ACCIDENT

20. AND DIFFICULT TO AVOID OR
PREPARE FOR

21. INSURANCE ONLY WORKS WHEN
THE INSURED AND INSURER…

22. FAIRLY SHARE THE BENEFITS AND
RISKS OF AN INSURANCE
AGREEMENT

23. UNFAIR INSURANCE CONTRACTS
ALLOW ONE PARTY TO BENEFIT
AT THE OTHER’S EXPENSE

24. FOR EXAMPLE

25. IF I INSURE MY CAR FOR MORE
MONEY THAN IT IS WORTH

26. THEN

28. I UNFAIRLY BENEFIT AT THE
EXPENSE OF THE INSURER

29. AND IF MY INSURANCE
COMPANY TOOK MY PREMIUMS
UNTIL I FELL UNEXPECTEDLY ILL

30. AND THEN
CANCELED (A.K.A. RESCINDED)
MY CONTRACT…

31. MY INSURER UNFAIRLY BENEFITS
AT MY EXPENSE

32. GOOD INSURANCE CONTRACTS
CAN PROTECT BOTH INSURER
AND INSURED FROM…

36. A HAZARD BECOMES “INSURABLE”
WHEN THE FOLLOWING SIX
ELEMENTS ARE PRESENT
Chapter 14 Private Health Insurance from Introduction to health care delivery: a primer for
pharmacists By Robert L. McCarthy, Kenneth W. Schafermeyer Pgs 381-382; 2007.

37. 1. THE PROBABILITY OF A PERIL
IN A POPULATION MUST BE
ACCURATELY CALCULATED
FOR EXAMPLE: THE PERIL OF A HEART ATTACK IN
A 50 YEAR OLD HISPANIC MALE IN THE WESTERN
U.S CAN BE ESTIMATED WITH SOME PRECISION

38. THEREFORE, AN INSURANCE
COMPANY CAN CALCULATE THE
RISK TO INSURE INDIVIDUALS
AND WHAT TO CHARGE TO MAKE AN ACCEPTABLE
PROFIT

39. 2. THE PERIL IS UNPREDICTABLE
FOR ANY SINGLE INDIVIDUAL
ALTHOUGH WE MIGHT KNOW THAT RISK OF
HEART ATTACK FOR INDIVIDUALS,
WE CANNOT KNOW WHICH INDIVIDUALS WILL
SUFFER ONE OR WHEN

40. OTHERWISE, INSURERS CAN DROP
INSURANCE FOR THE INDIVIDUAL
BEFORE THE PERIL STRIKES
OR THE INDIVIDUAL CAN ADD INSURANCE WHEN
THE PERIL IS IMMINENT

41. http://www.flickr.com/photos/greg-
palmer/3490903215/sizes/l/in/photostream/
3. LOSS ASSOCIATED WITH AN
EVENT IS ACCIDENTAL

42. ARSON, MURDER, SUICIDE, AND
OPTIONAL COSMETIC SURGERY
ARE EXAMPLES OF NON-
ACCIDENTAL EVENTS

43. 4. THE EVENT MUST RESULT IN A
SUBSTANTIAL LOSS
LOSSES MUST THREATEN THE
FINACIAL HEALTH OF THE
INSURED

44. SMALL LOSSES ARE NOT WORTH
THE TIME AND COST OF
INSURING
FOR EXAMPLE, YOU WOULD NOT
INSURE AGAINST A MILD
HEADACHE

45. 5. LOSS MUST BE SPREAD
ACROSS LARGE POPULATIONS

46. THE LARGER THE POPULATION,
THE SMALLER THE POTENTIAL
RISK OF LOSS TO INDIVIDUALS IN
THE POPULATION

47. 6. ECONOMICALLY FEASIBLE TO
COVER
WITH REASONABLE PREMIUMS AND
LOW ADMINISTRATIVE COSTS

48. PREMIUMS MUST BE LOW
ENOUGH TO ATTRACT
CUSTOMERS BUT HIGH ENOUGH
FOR A FAIR PROFIT TO INSURERS

49. PREMIUMS ARE KEPT LOW BY
REDUCING PAYOUTS FOR
EVENTS & INSURANCE
ADMINISTRATION COSTS

51. 1. CAN THE PROBABILITY OF NEED
FOR PRESCIPTION DRUGS IN A
POPULATION BE ACCURATELY
CALCULATED?
YES!! EPIDEMIOLOGICAL STUDIES CAN IDENTIFY
HOW MANY INDIVIDUALS IN A POPULATION NEED
PRESCRIPTION DRUGS.

52. 2. IS THE NEED FOR PRESCRIPTION
DRUGS UNPREDICTABLE FOR ANY
SINGLE INDIVIDUAL?
YES!! ALTHOUGH WE MIGHT KNOW THE RISK
THAT SOME INDIVIDUALS WILL NEED DRUGS,
WE CANNOT KNOW EXACTLY WHICH
INDIVIDUALS OR WHEN

53. http://www.flickr.com/photos/greg-
palmer/3490903215/sizes/l/in/photostream/
3. IS THE LOSS ASSOCIATED WITH
PRESCRIPTION USE ACCIDENTAL
YES!! MOST PRESCRIPTION DRUG USE IS
UNPLANNED. DRUGS ARE TYPICALLY USED TO
TREAT OR PREVENT AN UNEXPECTED INJURY OR
ILLNESS.

54. 4. DOES PRESCRIPTION DRUG
USE THREATEN THE FINANCIAL
HEALTH OF THE INSURED?
IN MANY CASES, YES!! THE DRUG
BILL FOR THE SERIOUSLY ILL CAN BE
THOUSANDS OF DOLLARS A MONTH.

55. 5. CAN THE COST OF PRESCRIPTION
DRUGS BE SPREAD ACROSS LARGE
POPULATIONS?
YES!! PRESCRIPTION DRUG USE IS
WIDESPREAD, BUT RELATIVELY FEW PEOPLE
MAKE UP THE BULK OF DRUG COSTS IN A
YEAR.

56. 6. IS PRESCRIPTION DRUG
COVERAGE ECONOMICALLY
FEASIBLE?
YES!! USE OF TECHNOLOGY AND AUTOMATION
CAN ALLOW INSURERS TO OFFER COVERAGE
WITH REASONABLE PREMIUMS AND LOW
ADMINISTRATIVE COSTS

57. 6. IS PRESCRIPTION DRUG
COVERAGE ECONOMICALLY
FEASIBLE?
WHETHER INSURERS ACTUALLY OFFER COVERAGE
WITH REASONABLE PREMIUMS & LOW
ADMINISTRATIVE COSTS IS OPEN TO DEBATE

58. FOR ANY QUESTIONS…?