Health Insurance is a way to distribute the financial risk associated with the variation of individual’s health care expenditures by pooling costs over time (pre-payment) and over people (pooling). Thus, Health Insurance collects upfront premiums, pools it over many people, primarily for health expenses of the individual.
The health insurance offered through insurance companies is known as Private Health Insurance or commercial health insurance ( this clears the confusion between government owned insurance companies and private owned insurance companies).
Commercial Health Insurance refers to the coverage of a defined set of health services financed through private payments in the form of a premium to the insurer.
The insurer, a non-governmental entity, assumes much or all of the risk for paying for those services under a contractual arrangement, the health insurance policy. Health insurance is unique as it involves a third party other than the insurer and the insured, the healthcare provider.
The healthcare provider pays a major role in determining what services are used, how much services are used and how much the cost – which makes it different and complex. Economists describe health insurance as an ‘imperfect market’ where normal market forces do not work as expected. The imperfections include the following concepts like Information Asymmetry, Risk Selection, Moral Hazard etc.
Courtesy: Health Insurance Guide from Sashi Publications private limited
