I’m thinking of medical insurance where the people who are in the covered group pay much less up front but when a member gets sick the group agrees to cover the whole cost.
Sounds like standard insurance so far, right?
Except there is no reigning umbrella company, just a tightly aranged agreement among the group to help each other out when needed.
For example; let’s say I got 100 of my closest friends to agree to drop their existing coverage and just do the “pay as something happens” thing with me. There would be a minimum monthly fee to buffer any huge claims (let’s say 200/mo per person) so after the first month there would be 20,000 in the kitty and after one year there would be 240,000, etc. in an interest bearing account.
As a claim is made the group’s monthly input per person might have to go up to keep the balance positive and the account solvent.
The details have to worked out to make the thing feasible but are there plans like this or has anyone tried to pull something like this off?
Let me see if I understand. So suppose there are 100 people in the group and each is paying $100 a month. That equals $10,000 a month. Now, the fund just up and pays people’s medical bills as long as the total bills add up to $10,000 a month or less, regardless of who owed how much. If the medical bills crept up to, say, $15,000 a month total for everyone, then money would either come out of savings or, failing that, everyone’s bill would go up so that the total income of the plan is $15,000?
No, if there is a huge hit then everyone’s rates go up until the balance is managable by the original 200/mo. IOW, there might be spikes in the monthly individual cost if someone were to have a huge cancer bill or bypass surgery. You would agree to be in this program, so there would be levels of health/risk/cost associated. And maybe the person who submitts a claim of * more than they’ve already paid in* would be forced to cover 10% of the med bills or something like that so that there is some minimal yet manageable expectation of the people hitting up the fund to pay a little more than the average person.
Well, it’s not entirely different from the theory of how health insurance does work, it just spreads risk on a larger scale and adjusts premium based on the specific risk that person poses to the system. The only difference is that the person who manages the money also pays the doctors. The main problem is that if you keep adjusting everybody’s pay level based on the group’s risk, you’ll have people for whom it is a losing proposition to be in this pool in the first place because they never get sick.
This is called a mutual insurance, and it’s pretty common in Europe (except that instead of 100 friends, it’s rather thousands of people working in the same company, or hundreds of thousands who joined a nation-wide mutual insurance. All my insurances (health, house, civil liability…) are mutual insurances.
I asked several times on this board whether those existed in the USA, and I understand that they’re almost non-existent there. Note however that such insurances only remove profit from the equation, and since there are many other, and more important issues driving up healthcare costs in the USA, it won’t be a magical fix.
Obviously, an interesting aspect of it is that you have a say in the insurance’s admnistration and policies (at least if you bother to show up for assemblies and to vote for the board of directors, which I don’t, like most people)
Insurance companies negotiate much better rates with hospitals and doctors. Your 100 people might wind up paying list price for everything, sometimes 2 or 3 times what those with insurance pay. Or did you want your group to hire some negotiators and lawyers to get agreements in place for lower rates? (With just 100 people, you may not have much leverage anyway.)
Suppose somebody gets very sick and runs up a million dollar hospital bill the first year. You run through your $240,000 buffer (fortunately, every other member was completely healthy) and try to collect the remaining $7600 or so from each member, but half of them decide this was a bad idea and quit, or say they just don’t have the extra money. (You could try to sue them, but meanwhile the hospital now wants $15200 from each of the remaining members.)
Insurance companies have huge reserves and a very large pool of customers to draw from, to mitigate against this sort of thing.
Following up on clairobscur’s post, we used to have mutual life insurance companies in Canada, but they have been converted to regular insurance companies over time. I don’t know if there are any mutuals left. (and, they were life insurance, not health insurance, since our health insurance is a government program.)
Mutual insurance is certainly well-known in the US; State Farm, I think, is the largest, though Mutual of Omaha is probably best-known, at least to a certain generation.
However, I think what the OP is suggesting is a reciprocal inter-insurance exchange.
There used to be many mutual insurance companies in the US, but as far as I know they have all demutualized. One that I had a policy (life insurance) sent me a check for about $500 when they demutualized, which was, I guess, the value of my equity (which, of course, they computed). Now they are an ordinary for-profit company.
The Wikipedia article on mutual insurance says that such companies have fallen out of favor because they find it difficult to raise capital. And I’ve worked for a couple of companies who self-insured their employees. There was an insurance company that provided the insurance cards, the list of doctors and processed claims and payments, but the company itself ultimately paid all claims.
There are many mutuals left (at least according to the Wiki).
I too had a life policy with a company that ‘demutualized’. They gave me a hundred shares of MetLife stock and an annual check for $87.
Another common reason to demutualize is to be able to attract executive talent and incentivize them with stock and options. Of course, once demutualized, the company has to pay attention to Wall Street not just their customers.
What the OP is suggesting sounds exactly like my understanding of how “insurance” works in many Amish communities. They self insure on a group level for health and homeowners losses.