Health Insurance Providers

Different Types Of Health Insurance Providers

In this chapter we will take a look at all the different “types” of health insurance providers and how they are structured. The following are the different types of insurers:

• Traditional Health Insurance Providers
  
  
• Domestic, Foreign and Alien Companies
  
  
• Blue Cross/Blue Shield
  
  
• Health Maintenance Organizations (HMO)
  
  
• Preferred Provider Organizations (PPO)

Traditional Health Insurance Providers

This type of company is one that has evolved over time into a ‘branded” image in the eyes of the public. This is the opposite of what we have come to know in today’s world as Health Maintenance (HMO) and Preferred Provider Organizations (PPO).

Traditional health insurance providers selling health coverage may specialize in just health coverage. The types of insurance they sell may be referred to as accident and health (A&H) or accident and sickness (A&S) companies. Most states require a separate license to write life, health and property casualty.

• Stock and Mutual

Not only can an insurance company be categorized by the type of insurance, they can also be considered in terms of its ownership as either a stock or mutual company.

At the time of organization, a stock company sells stock to raise the money necessary to operate a business. The stockholders are not necessarily insured by the company nor do policyholders necessarily own stock in the company. It is in business solely for the purpose of selling insurance to policyholders.

On the other hand, with a mutual company the policyholders are also owners of the company and as such, can vote to elect the company management. Any monies beyond the operating costs of the company may be returned to the policyholders as dividends or reductions in future premiums.

• Consumer Cooperatives

There are two different types of cooperatives. They are consumer cooperatives and producer cooperatives. Producer cooperatives include companies like Blue Cross/Blue shield and some Health Maintenance Organizations which we will discuss further on.

Additionally, there are two types of consumer cooperatives. One is the mutual insurance model discussed previously and the other less common and unincorporated type is a reciprocal company. A reciprocal company is based on the model of give and take. The members of these health insurance providers agree to share insurance responsibilities among all members.

All members insure one another and share in the losses and no member can buy insurance without committing to providing insurance in return. This type of consumer cooperative is managed by an attorney-in-fact who handles all matters of business for the cooperative.

• Participating And Non-Participating Policies

These terms indicate that the policyholder of traditional types of health insurance providers, either does or does not participate in, or receive, a share of any surplus that results from an insurers business operations. These terms are also known as par and non-par.

The surplus from which participating policyholders might receive a return are excess reserves for claims, interest on investments and savings on expenses. This represents amounts not ear marked for any particular purpose and are therefore available to participating policy owners.

Domestic, Foreign and Alien Health Insurance Providers

Here in the United States, companies are usually organized and chartered under the laws of one particular state and it is common for them to do business in many states. Health insurance providers that operate their home office in the state where they are organized are known in that state as a domestic companies.

In any other states where they do business the company is considered a foreign company. If the home office of health insurance providers is located outside the United States, they are considered an alien company. No matter whether they are domestic, foreign or alien, health insurance providers must be registered in every state in which they operate.

Blue Cross/Blue Shield

These health insurance providers represent producers cooperatives. Hospitals and physicians who sponsor Blue Cross/Blue Shield plans are providing the insurance, therefore they are considered to be the producers of the cooperative. Originally Blue Cross and Blue shield were separate voluntary and tax-exempt associations.

Blue Cross provided payments to hospitals and Blue Shield covered physicians, medical and surgical fees. People originally covered under these health insurance providers were traditionally known as subscribers since Blue Cross and Blue shield differ from traditional insurance companies.

In most states, the two have merged, but each group still covers the expenses for which they were initially created. Over the years the tax advantages they originally enjoyed have deteriorated and many states have removed their exempt status. Additionally the federal Tax Reform Act of 1986 now makes these health insurance providers taxable as insurance companies.

Health Maintenance Organization (HMO) Health Insurance Providers

The number of Health Maintenance Organizations (HMOs) is growing by leaps and bounds and is in direct correlation with increasing health care costs. The purpose of HMOs is to manage health care by using a prepaid model that emphasizes early treatment and prevention.

This prepayment is referred to as a service-incurred basis and is paid by the consumer. This emphasis on prevention such as routine physicals, diagnostic screening is paid for in advance. The model is a direct contrast to health insurance providers that historically did not pay for preventive programs but only paid after the fact for injury and illness.

In theory, the HMOs focus on prevention is ultimately supposed to reduce health care costs. At the same time, HMOs provide medical treatment, hospital and surgical when needed. There is another way that HMOs differ from the traditional health insurance providers.

HMOs have two step system that is not shared by insurance companies. Under the traditional method, consumers receive the health care itself from the medical profession and the financial coverage from the insurance company. In sharp contrast, the HMO provides both the health care services AND the health care coverage.

These are combined because the HMO is made up of medical practitioners who provide specific services to HMO members at prices that are pre-set and the HMO member agrees to pay the HMO a specified amount in advance to cover necessary services. Therefore, the HMO is furnishing health services as well as making the financial arrangements.

As we have stated, the emphasis on prevention and the effort to containing cost is the major factor for developing HMOs. However, federal law also encourages the development of HMOS. These health insurance providers may receive government grants as well as requiring certain employers who offer health benefits, to offer HMO enrollment as an option by meeting certain criteria.

The basic structure of HMOs includes contractual agreements with a variety of facilities and health care providers to provide services to HMO subscribers. Within this structure are four different types, Group, Staff, Network and Individual Practice Association.

• Group Model

Early on this was the predominant scenario. With this arrangement the HMO contracts with an independent medical group that specializes in a variety of medical services and the HMO in turn provides these services to members. Additionally, the HMO is paying another entity as a whole rather than individuals.

• Staff Model

This arrangement is pretty self-explanatory wherein the physicians are paid employees working on the staff of an HMO in a clinical setting at the HMO physical facilities. The HMO often owns the hospital as well. In this model the HMO is taking all the financial risk as opposed to the group model.

• Network Model

This arrangement works like the Group model with the difference being that the HMO will contract with more than one group to provide the services. The primary purpose for this model is to provide convenience and increase accessibility for the members.

• Individual Practice Association Model

This structure is designed to give maximum flexibility to the HMO members wherein they contract individually for all services. There are no separate HMO facilities and all services operate out of their own facilities.

This explanation of HMO and other types of health insurance providers is continued on the next page.

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