Third-Party Payers (3)
Posted on December 11, 2008 - Filed Under Finance
Commercial Insurers
Commercial health insurance is issued by life insurance companies, by casualty insurance companies, and by companies that were formed exclusively to write health insurance. Commercial insurance companies can be organized either as stock or mutual companies. Stock companies are shareholder owned and can raise capital by selling shares of stock just like any other for-profit company. Furthermore, the stockholders assume the risks and responsibilities of ownership and management. A mutual company has no shareholders; its management is controlled by a board of directors elected by the company’s policyholders. Regardless of the form of ownership, commercial insurance companies are taxable entities.
Commercial insurers moved strongly into health insurance following World War II. At that time, the United Auto Workers (UAW) negotiated the first contract with employers in which fringe benefits were a major part of the contract. Like the Blues, the majority of individuals with commercial health insurance are covered under group policies with employee groups, professional and other associations, and labor unions.
Self-Insurers
The third major form of private insurance is self-insurance. An argument can be made that all individuals who do not have some formof health insurance are self-insurers, but this is not technically correct. Self-insurers make a conscious decision to bear the risks associated with healthcare costs and then set aside funds to pay future costs as they occur. Individuals are not good candidates for self-insurance because they face too much uncertainty concerning healthcare expenses. On the other hand, large groups, especially employers, are good candidates for self-insurance. Today, most large groups are self-insured. For example, employees of the State of Florida are covered by health insurance that is administered by Blue Cross/Blue Shield of Florida, but the actual benefits to plan members are paid directly by the state. Blue Cross/Blue Shield is paid to administer the plan, but the state bears all risks associated with cost and utilization uncertainty.
Many firms today are even going one or two steps further in their selfinsurance programs. For example, Digital Equipment Corporation, a major computer maker, negotiates discounts directly with hospitals and physicians and self-administers its program. Others, such as Deere & Company, a farm implements manufacturer, have set up company-owned subsidiaries to provide healthcare services to their employees. These companies believe that they can lower healthcare costs by applying the kind of management attention to healthcare that they do to their core businesses.
Taken From : HEALTHCARE FINANCE
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