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What do mutual health insurance companies do?

husband and wife with two children seek mutual health insuranceMutual health insurance companies cater to their members by focusing on their medical and financial needs. Profits are usually reinvested in the company, paid out to policyholders, or used to reduce premiums.

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Mutual health insurance companies are not established for profit but rather for their policyholders.

What does mutual mean?

According to HM Revenue & Customs, mutual means that everyone contributes to the company. Then when there is a need, a payout is made. Similarly, when there is a profit, a payout is made to the “members” in the form of a dividend, policy premium reduction, or capital distribution.

In the case of a mutual health insurance company, the policyholders are both members and owners, which is why the term mutual indicates the company is owned by its policyholders rather than shareholders or investors.

How did mutual insurance companies get started?

According to the National Association of Mutual Insurance Companies, mutual companies date as far back as 1692 in England. The concept began in the United States in 1752 when Benjamin Franklin established the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire.

Many mutual health insurance companies got started to meet the needs of members of a certain organization. For instance, organizations that cater to education providers may establish a mutual health insurance company that focuses on educators and their needs.

Do mutual health insurance companies provide better benefits to its policyholders?

Mutual health insurance companies are often only offered to individuals within a certain organization. Since the company caters to its members of the association, the company tries to keep its premiums down and benefits up.

Does the size of the company determine if it is a mutual company or not?

Neither the company size nor the number of members of the company determines if it is a mutual company or not. Nor do these factors determine whether the company is going to put the word mutual in its name or be run as a mutual company.

How do mutual health insurance companies pay out profits?

Mutual health insurance companiespay out profits to their policyholders in a variety of ways depending on the company’s bi-laws. Funds may be reinvested into the company, paid out in the form of:

What happens when a mutual insurance company has financial problems?

Although the mutual insurance company has policyholders for its members and not investors, they can still undergo financial difficulty. The difference in a mutual company is that the company cannot approach investors for its financial woes. The company has to find other ways to help its financial hardships rather than hitting up its policyholders.

This is often why insurance companies are often taken over by the state insurance departments. As mutual companies, they have no one to lean on or contact to receive more money. In fact, the companies in financial turmoil are often detected when they stop paying claims.

Another way in which a mutual insurance company deals with its financial problems is to cancel policies all together. For instance, American Community Mutual Insurance Company notes that it will no longer provide health insurance to new individual and small group health insurance customers.

However, this particular company is keeping all current health insurance policies in force until policyholders can obtain new health insurance policies.

How are mutual health insurance companies different from regular insurance companies?

The biggest differences in a mutual health insurance company versus a regular insurance company are:

  • How the company is established
  • How profits are managed
  • How products are developed

Private insurance companies are usually started by investors and stocks are often publicly traded on Wall Street whereas mutual companies get their start by organizations, which see a need for their members.

Profits are paid out to mutual insurance members or reinvested to the company whereas profits of private companies are paid out to their stockholders or in bonuses to company executives.

Products are developed in a mutual health insurance company with the needs of its members in mind whereas in a private company needs are considered along with profits.

In some ways, private insurance companies may be considered mutual health insurance companies due to the concept that they return a portion of policyholder’s money every time they pay out a claim to a provider. However, this is not really what “mutual” means in the insurance industry.

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