Health Insurance Providers
In this chapter we will take a look at all the different "types" of insurers and how they are structured. The following are the different types of insurers:
- Traditional Insurers
- Domestic, Foreign and Alien Companies
- Blue Cross/Blue Shield
- Health Maintenance Organizations (HMO)
- Preferred Provider Organizations (PPO)
Traditional Insurers
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).
A traditional insurer 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. Members 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 a traditional type of insurance, 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 Companies
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. A company that operates its home office in the state where it is organized is known in that state as a domestic company. In any other states where they do business the company is considered a foreign company. If the home office of a company is located outside the United States, it is considered an alien company. No matter whether it is domestic, foreign or alien a company must be registered in every state in which they operate.
Blue Cross/Blue Shield
These service organizations 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 plans 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 them taxable as insurance companies.
Health Maintenance Organizations (HMO)
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 plans 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. They 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.
There are several types of groups that may sponsor HMOs, some of which are:
- Medical schools or associations
- Labor unions
- Physicians
- Hospitals
- Insurance companies
- Labor groups
- Consumer groups
- Service organizations (Blue Cross/Blue Shield)
- Government entities
Most HMOs restrict membership to a narrowly defined group. For instance, a labor union might limit enrollment to active members of their union. HMOs are required to provide the following basic health care services:
- Physicians' services
- Hospital inpatient services
- Outpatient medical services
- Emergency services
- Preventive services
- Diagnostic laboratory services
- Diagnostic and therapeutic radiology services
Many HMOs may also provide the following, but are not required to do so:
- Prescription drugs
- Vision care
- Dental care
- Home health care
- Nursing services
- Long-term care
- Mental health care
- Substance abuse services
Those who would like supplemental services may purchase them from the HMO only as an addition to the basic health care services that the HMO provides.
Co-payments. HMO members may be charged only nominal amounts for basic services in additional to the original monthly payments. In some cases there may be no additional payments for services. All details are spelled out in a descriptive document which is known as either the certificate of coverage or evidence of coverage.
Gatekeeper. HMOs most often have this type of system wherein a primary care physician must be selected who in turn will authorize all care for a member including referrals to specialists.
Twenty four hour access. Normally members have 24 hour access to the HMO.
Open Enrollment. This term can apply in one of two different ways. An employee sponsored group has a set time period each year when employees may choose to enroll or remain enrolled or change plans. The second meaning is a period each year when an HMO must advertise to the general public on an individual basis.
Nondiscrimination. When HMO services are offered to a group, the HMO may not refuse to cover an individual member of the group due to pre-existing health conditions. This practice is much different from traditional insurers where adverse conditions may preclude enrollment.
Complaints. HMOs must be set up to handle coverage complaints and care complaints. HMO members must receive a document that spells out how complaints can be registered.
Prohibitive practices. In addition to non-discrimination against group members based on their health status during enrollment, HMOs are not allowed to cancel or dis-enroll members because of their current health status or the amount of usage of health services. HMOs are also not allowed to use words that may imply that the HMO provides insurance in the traditional manner.
Preferred Provider Organizations (PPO)
Preferred Provider Organizations are another attempt to reduce medical costs. This is an arrangement whereby a selected group of independent hospitals and medical practitioners in a certain area agree to provide certain services at a prearranged rate.
The organizers and providers agree upon medical service charges that are generally less than the provider would charge patients not associated with the PPO. These differ from HMOs in that the providers are paid on a fee for service basis rather than receiving a flat monthly amount and the organizer or contracting agency might be:
- Traditional insurance companies
- Blue Cross/Blue Shield
- Local groups of hospitals
- Local groups of physicians
- An existing HMO
- Large employers
- Trade unions
Those people who will receive services select a preferred provider from a list that the PPO distributes. Usually the choices are more extensive with a PPO than a HMO. Sometimes PPOs and HMOs are lumped together and called a managed care system. One characteristic still exists concerning regulation, however. HMOs increasingly have to meet state requirements as well as standard established by federal government. PPOs are less stringently regulated since any group that can agree on the arrangements can call itself a PPO.
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