Traditional Health Insurance Companies

These entities are the prevailing model that most of the public think of as health insurers as opposed to newer Health Maintenance (HMO’s) and Preferred Provider Organizations (PPO’s). These insurers sell health coverage and 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 separate licenses to write life, health and property casualty insurance.

Stock and Mutual:

Not only can an insurance company be classified by the type of insurance it markets, but it can also be considered in terms of its ownership as either a stock (public) or mutual company. A stock or public company sells stock to raise the money necessary to operate the 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.

In a mutual company the policyholders are also owners of the company and have a voice in company management. Net profits from company operations may be returned to the policyholders as dividends or reductions in future premiums.

Consumer Cooperatives:

There are consumer cooperatives and producer cooperatives. Producer cooperatives include companies like Blue Cross/Blue shield and some (HMO’s) Health Maintenance Organizations which will discussed in separate article.

Consumer cooperatives comprise the mutual model discussed previously and another less common unincorporated type, the 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:

The policyholder of a traditional insurer, either does or does not participate in, or receive, a share of any surplus from an insurers business operations. These terms are also known as par and non-par. The surplus participating policyholders might receive are possibly due to excess reserves for claims, interest on investments and expense reductions. In other words, funds not ear marked for any particular purpose so are surplus and available to participating policy owners.

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