Paul Sanchez
There are several types of insurance models, including auto, health, and property insurance. The insurance industry generally operates by assuming a financial risk from customers and transferring it to the insurer. The insurer writes up a policy stating the terms and covered events for which they pay the customer if a claim is filed. In return, the insurance company receives a premium from the customer. Some companies engage in reinsurance to reduce risk, which involves insurance companies buying insurance to protect themselves from excessive losses. There are also different types of health insurance plans, such as Exclusive Provider Organization (EPO) and Health Maintenance Organization (HMO) plans, which offer varying levels of coverage and provider choices. Additionally, there are four basic models of healthcare systems: the Beveridge model, the Bismarck model, the National Health Insurance (NHI) model, and the out-of-pocket model. Each model varies in terms of funding sources, providers, and cost-sharing.
| Characteristics | Values |
|---|---|
| Insurance models | Co-insurance, Dual insurance, Self-insurance, Reinsurance, Subscription business model |
| Revenue models | Premiums, Risk pricing, Investing, Claims paid |
| Healthcare systems | Beveridge model, Bismarck model, National Health Insurance model, Out-of-pocket model |
| Health insurance plans | Exclusive Provider Organization (EPO), Health Maintenance Organization (HMO), Bronze, Silver, Gold, Platinum, Catastrophic |
| Health insurance costs | Premium, Deductible, Copay, Coinsurance |
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What You'll Learn
Co-insurance, dual insurance, self-insurance, and reinsurance
Co-insurance is a common feature of health insurance plans, and some property insurance policies also contain co-insurance provisions. In this context, co-insurance refers to the percentage of a covered expense that the insured person is responsible for paying. Typically, co-insurance provisions are expressed as a fixed percentage, with one of the most common breakdowns being an 80/20 split, where the insurer pays 80% and the insured pays 20%. This only applies after the insured has reached their deductible for the year.
Dual insurance refers to having two health insurance plans, which can result in greater coverage of medical costs and out-of-pocket expenses than a single plan. It is important for individuals with dual insurance to notify both insurance companies of the separate plans and inform their medical providers about their dual coverage. After a primary claim is processed, a secondary claim can be filed with the other insurance company, which will then cover any remaining costs. Common situations in which individuals have dual insurance include being covered by an employer's plan and a spouse's plan, or in the case of children, being covered by both parents' plans.
Self-insurance is a risk management method in which an organisation liable for some risk chooses to bear the risk itself instead of taking out third-party insurance. Self-insurance is rarely used by individuals because they often lack the funds to cover large uncertain risks and do not gain sufficient cost savings to justify taking on the risk. On the other hand, organisations can set aside money using actuarial and insurance information to ensure they have enough funds to cover future uncertain losses. By retaining and calculating risks, and paying claims from captive or on-balance sheet financial provisions, self-insurance can be cheaper than buying commercial insurance.
Reinsurance, or insurance for insurers, is a form of risk transfer and risk-sharing between insurance companies. Reinsurance companies provide insurance against loss for other insurance companies, especially in cases of catastrophic risks such as hurricanes. Reinsurance companies employ risk managers and modellers to price their contracts, and they tend to work in wider jurisdictions involving different legal systems. There are two main types of reinsurance: facultative reinsurance, which covers a single risk or block of risks, and treaty reinsurance, which involves the reinsurer accepting all of the policies or an entire class of policies from the reinsured.
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National health insurance models
National Health Insurance (NHI) models are one of the four basic models of healthcare systems. NHI models are single-payer national health insurance systems, where the government acts as the single payer for medical procedures, but the providers are private. This model is universal insurance that does not make a profit or deny claims. Since there is no need for marketing, no financial motive to deny claims, and no concern for profit, it is cheaper and simpler to navigate.
The NHI model blends aspects of both the Beveridge and Bismarck models. The Beveridge model, named after UK politician William Beveridge, is a tax-funded healthcare system where healthcare services are provided and funded by the government. It is found in countries like the UK, Spain, New Zealand, and Cuba. The Bismarck model, on the other hand, was created by Prussian Chancellor Otto von Bismarck in the 19th century and is found in countries like Germany, France, Belgium, and Japan. This model requires employment for health insurance and uses private-sector providers, with payment coming from a government-run insurance program that every citizen pays into.
The NHI model is found in countries like Canada, Taiwan, and South Korea. In these countries, the government has considerable market power to negotiate lower prices from pharmaceutical companies. NHI plans control costs by limiting the medical services they will pay for or by making patients wait to be treated. The primary criticism of the NHI model is the potential for long waiting lists and delays in treatment, which are serious health policy issues.
While most countries have a blend of these four models, they generally have a single healthcare system that is uniform for most citizens. The NHI model offers a balance between public insurance and private practice, allowing hospitals to maintain independence while reducing internal complications with insurance policies. This model has been adopted by newly industrialized countries and tends to have low financial barriers to treatment, with patients usually able to choose their healthcare providers.
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Out-of-pocket models
In the US, for example, those who are over 65 and on Medicare follow Canada's single-payer model. Working Americans who get insurance through their job follow Germany's Bismarck model. The 15% of the US population who have no health insurance follow the out-of-pocket model, as they can only access a doctor if they can pay out-of-pocket at the time of treatment or if they are admitted to the emergency ward at a public hospital.
The out-of-pocket model is distinct from other models in that it is not insurance-based. In contrast, the Bismarck model, found in Germany, France, Belgium, the Netherlands, Japan, Switzerland, and parts of Latin America, is a multi-payer insurance model. In this model, employers and employees finance "sickness funds" through payroll deductions, and private insurance plans cover every employed person, regardless of pre-existing conditions. The Beveridge model, found in the UK, is a single-payer national health service. The National Health Insurance model, found in Canada, Taiwan, and South Korea, blends aspects of both the Beveridge and Bismarck models.
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Health insurance plans
There are several different insurance models, and health insurance plans can vary significantly depending on the country and the specific plan chosen. In general, insurance companies operate by assuming their customers' financial risk and transferring it to the insurer. The insurer then writes up a policy outlining the terms and covered events, and the customer pays a premium to the insurance company.
One model of health insurance is the Bismarck model, named after Prussian Chancellor Otto von Bismarck, who invented the welfare state in the 19th century. This model uses an insurance system, usually financed jointly by employers and employees through payroll deduction. Unlike some other insurance industries, the Bismarck model covers everybody and does not make a profit. Doctors and hospitals tend to be private. This model is found in Germany, France, Belgium, the Netherlands, Japan, Switzerland, and, to a degree, in Latin America.
Another model is the single-payer or National Health Insurance (NHI) model, which is found in Canada, Taiwan, and South Korea. In this model, the single payer has considerable market power to negotiate lower prices. NHI plans control costs by limiting the medical services they will pay for or by making patients wait to be treated.
In the United States, there is a fragmented national healthcare system with separate models for different classes of people. For example, Americans over 65 on Medicare follow a similar model to Canada, while working Americans who get insurance through their job follow a similar model to Germany. About 15% of the US population does not have health insurance, and they must pay out of pocket for medical treatment unless they are admitted to an emergency ward at a public hospital.
Within these broader models, there are also different types of health insurance plans, such as Exclusive Provider Organizations (EPOs) and Health Maintenance Organizations (HMOs). EPOs are managed care plans that only cover services from doctors, specialists, or hospitals within the plan's network (except in emergencies). HMOs are similar in that they usually limit coverage to care from doctors who work for or are contracted by the HMO.
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Auto, health, and property insurance
The insurance industry operates by assuming a financial risk from customers and transferring it to the insurer. The insurer writes up a policy stating the terms and covered events for which they pay out if a claim is filed. In return, the insurance company receives a premium from the customer. Insurers must price the risk of an event occurring and charge an appropriate premium for assuming that risk.
Auto Insurance
Auto insurance rates vary depending on the car's make and model. More expensive cars tend to be costlier to insure because they are more expensive to repair, and special parts and mechanics may be required. The availability of parts is also a factor. Newer vehicles are generally more expensive to insure because they are worth more. Safety ratings can also influence insurance rates, with safer cars incurring lower rates since they get into fewer accidents. The Honda Civic and Honda Accord are among the most frequently stolen vehicles, making them more expensive to insure.
Health Insurance
There are four basic healthcare system designs: the Beveridge model, the Bismarck model, the national health insurance model, and the out-of-pocket model. The Beveridge model is primarily funded and delivered by the government, while the Bismarck model is privately funded and delivered. The national health insurance model has public funding but private facilities, and in the out-of-pocket model, only those who can afford to pay receive care. The US adapts these models to meet the needs of its citizens.
Property Insurance
Property insurance companies use catastrophe models to simulate thousands of catastrophic event scenarios. These simulations are based on data from meteorological history, geology, and geography, and they help to quantify expected damages and insured losses. The output from these models is used for ratemaking, premium mitigation credit quantification, and reinsurance purchase decisions. Reinsurance is a type of insurance that insurance companies buy to protect themselves from excessive losses due to high exposure events. It helps insurers maintain solvency and avoid default due to too many claim payouts.
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