Why Are Health Insurance Companies Needed?
The question of whether health insurance companies are needed depends entirely on one's perspective. In some countries, health insurance companies are not needed or have a reduced role because the health care coverage is a service that the government provides. In cases where the health-care system is mainly private, the benefits become more apparent.
Function
Insurance companies operate under the assumption of shared risk. Some of those insured will get sick; others will remain healthy. Therefore, those who are healthy help pay the costs for those who get sick. At the same time, those who are healthy have peace of mind that comes from knowing they will be protected financially in the event they do get sick.
Hospitalization
The average daily cost of a hospital visit is more than $1,100 for routine care only. Critical care or intensive care can push the costs much higher. Health insurance companies negotiate rates with hospitals to keep these costs down. Further, they pay the vast majority of the bills in many situations, often up to 80 or 90 percent.
Doctor's Visits
Health insurance companies also provide a service in encouraging those insured to make routine visits to the doctor. While a typical doctor's visit can easily run $60 or more, insurance companies often offer a co-pay fee that makes the out-of-pocket costs for the patient much less. In some cases, the visit may be totally free. Often, patients are not required to meet a deductible before taking advantage of coverage for doctor's visits.
Prescription Drugs
Another good reason why health insurance companies are needed is because of the cost of prescription drugs. Americans alone spent more than $287 billion for prescription drugs in 2008, a CNN report revealed. Having to bear the cost of these drugs without help would lead to financial ruin for some individuals, especially the elderly or those with chronic conditions.
Multiple Insurance Companies
Further, having more than one insurance company promotes competition and helps keep the overall price of coverage down. Having a monopoly or an oligopoly in the insurance industry would mean consumers could be charged almost anything, and contraction in the industry is seen as a threat to the current system. In fact, some states may find they are quickly moving toward monopolies. Historically, at least in the United States, the tendency has been to let the market take care of such pricing issues.
Mutiple Types
In addition to being multiple health insurance companies, multiple types of health insurance are available. These include health maintenance organizations (HMO), preferred provider options (PPO) and point of service (POS) insurance. Each has advantages and disadvantages in providing consumers a choice. For example, HMOs are more restrictive than PPOs, but typically also are cheaper.
The Alternative
As mentioned, some countries run on a nationalized system of health care, where the service becomes a function of the government. In effect, the government acts as a big insurance company, taxing citizens and residents for the service. Thus, those who are healthy pay for those who are not. This concept of shared risk is exactly the same that private insurance companies use.
Tags: health insurance, health insurance companies, insurance companies, insurance companies, more than, those healthy
