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Health Insurance Companies Re-insuring Self-Employed Health Insurance Carriers

May 19th, 2009

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self employed Health Insurance Carriers

Credit: Kenny Louie via Flickr under Creative Commons

Self Employed Health Insurance Carriers

The role of self-employed health insurance carriers is to collect premiums each month in return for the guarantee that the benefits stipulated in the health insurance plan will be paid out on time. Each health insurance carrier must remain solvent, which means they must be able to collect enough premiums to not only cover the cost of the benefits they are providing but they must also meet their other operating costs such as paying their staff, maintenance costs of the building they operate from, purchasing supplies, paying taxes, contracting with hospitals and doctors and so on.


Self Employed Health Insurance Pools

Self Employed health insurance carriers rely primarily on the income it receive from the health insurance premiums they collect. These premiums are calculated based on the insurance pool, the size of the pool (how many insured are participating), and the general health risk. For example, are the insured young healthy individuals who require little or no health care, or are they people over 50 who will put a drain on the health care system as they age and begin to succumb to various ailments? Another insurance pool or group of insured would be those people requiring personal health insurance, group health insurance, or health insurance for the self-employed. All in all, insurance companies must evaluate each insurance pool and decide if they can sufficiently support the health insurance coverage required by each.

Not all pools will be evaluated in the same way. For example, self-employed health insurance is often more expensive than group health insurance for the simple reason that group health insurance plans cover more people varying in health status. It comes down to the law of averages as the larger group who are healthy will offset the claims made by the fewer members of the group who need health care. In turn smaller insurance companies sometimes known as micro insurance companies have a smaller insurance pool (less insured) than much larger companies and so each claim paid out is critical to the general profit of the micro insurance companies.


Re-insuring Self Employed Health Insurance Carriers

Some of these smaller insurances companies have to contract with other companies in order to make sure that they are able to provide self-employed health insurance coverage or coverage incurred through natural disasters and so on. In other words if an unexpectedly large claim had to be paid out, as in the case of unforeseen natural disasters, the health insurance company would pay a portion of the claims while the reinsurance company would cover the rest. Another example would be that the small micro insurance companies already know that they cannot cover the cost of health insurance for the self-employed alone and they contract with the reinsurance company to take responsibility for part of the claim disbursements.

Just as the health insurance company must initially evaluate each risk accepted so must the reinsurance company. Chances are if the initial health insurance company found the individual or group to be uninsurable the reinsurance company may very well concur, though of course there are exceptions and each application or risk pool for personal, group and self-employed health insurance must be evaluated on its own merits. Reinsurance companies will be cautious, they must gather information and evaluate the potential claims, if not enough data is available in the market and their research for potential risk cannot be concluded they will refuse to reinsure. Besides focusing on the risk pool, small insurance companies will provide reciprocal reinsurance thus helping each other out when the need arises. A final form of reinsurance is done through government subsidies, and the claims are reinsured that way.


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