Why Have to Buy Health Insurance?

By: Francis Lua

These are some of the follow up questions that people have regarding health insurance for the average consumer, it is easy to become baffled by the process; but, learning about the process, educating yourself, gives you much more purchasing power.

1. What is an HMO?

A health maintenance organization HMO is an organization that provides comprehensive health care to a voluntarily enrolled population at a predetermined price. Members pay fixed, periodic fees directly to the HMO and in return receive health care services as often as needed.

2. What is a PPO?

A preferred provider organization PPO is an association that contracts with a group of doctors, dentists, hospitals or other health care service providers to provide care at prearranged rates or discounts.

3. Can an employer work directly with an insurance company?

It is possible for an employer to deal directly with an insurer through a group sales representative to purchase group insurance. Premium rates and underwriting practices vary considerably from one insurer to another, however. In addition, the coverage provided is rarely identical. This means that comparison shopping is often beyond the capability of all but the most sophisticated purchases, for example, the very large company that has sufficient internal employee benefits expertise to do so. For this reason, many group insurance purchasers do not deal directly with insurance company underwriters or group insurance representatives, preferring instead to deal with an intermediary.

Smaller employers need a qualified professional to act as intermediary because they lack the resources and expertise to handle their group insurance needs. An intermediary can help them define their needs and objectives, design a plan to meet those criteria, select the proper purchasing and funding vehicle, obtain competitive quotes from insurers and service the plan.

4. What is a risk?

The risk an insurance company assumes when it agrees to cover a particular group is the possibility that claims will exceed the expected level. It is the chance of financial loss inherent in the group. Insurance companies use it to determine whether they will underwrite an insurance policy on a particular group.

The spread of risk is necessary not only because of the expected variations in a populations health but also because some policy holders particularly very small groups purchase group insurance to cover certain individuals with known health problems. This is a more costly way to obtain coverage for those high risk individuals, but often the only way possible, given the evidence of insurability requirement for individual policies.

Health Insurance
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