Thursday, March 11, 2010

What is health insurance anyway?

Health Insurance to begin with is not health insurance at all. It is actually sickness insurance. Most all insurers in the United States pay for sickness and injury. In general they never pay for wellness care. There are all kinds of reasons for how insurers operate which I will post in subsequent posts. I will always keep my postings short and to the point. And I will try to illuminate how health insurance should work.

For this post I will simply state that health insurance is simply a bank account guided by a fancy deposit and withdrawal agreement called a health insurance contract. Typically health insurers invest premiums that are deposited by patients (the insurers’ clients. The insurer then pays health insurance claims from accumulated premiums and investment returns. At the end of the annual insurance policy period the insurer retains any excess money left after the payment of all claims for the policy period. The insurer then either pays the stockholders and / or insurer executive’s bonuses. The process of adding premium for medical claims then starts all over again typically at a higher rate than the year before.

This is the way it is today. It does not have to be that way. In fact in near past insurers did not operate the way they do today. I will explain more in the next posting.