Types of Health Insurance

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Health insurance can be broken down into two broad categories:

Traditional and Managed care. Within those categories, there are four basic types of plans:

  1. Traditional indemnity plans, which are now often called fee-for-service plans;

  2. PPO, or Preferred Provider Organizations;
  3. POS, or Point-Of-Service plans;
  4. HMOs, or Health Maintenance Organizations.

No one type of health care plan is better than the other. It really depends on your needs and preferences.

Right now there are no HMO's in the Orlando area for other than the group market. All individual and family plans are PPO's.

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Up until about 30 years ago, most people had traditional indemnity coverage. These days, it's often known as "fee-for-service." Indemnity plans are a bit like auto insurance: you pay a certain amount of your medical expenses up front in the form of a deductible and afterward the insurance company pays the majority of the bill.

Advances in modern medicine increased the cost of providing health care and made it possible for people to live longer. Those advances caused many insurance companies to look for ways to reduce their costs of doing business, giving managed care the boost it enjoys today.

Fee-for-service

For years, indemnity or fee-for-service coverage was the norm. Under this type of health coverage, you have complete autonomy when it comes to choosing doctors, hospitals and other health care providers. You can refer yourself to any specialist without getting permission, and the insurance company doesn't get to decide whether the visit was necessary. You don't, however, have complete autonomy. Most fee-for-service medicine is managed to a certain extent. For instance, if you're not already incapacitated, you may need to get clearance for a visit to the emergency room.

On the down side, fee-for-service plans usually involve more out-of-pocket expenses. Often there is a deductible, usually of about $200-$2,500 before the insurance company starts paying. Once you've paid the deductible, the insurer will kick in about 80 percent of any doctor bills. You may have to pay up front and then submit the bill for reimbursement, or your provider may bill your insurer directly.

Under fee-for-service plans, insurers will usually only pay for reasonable and customary" medical expenses, taking into account what other practitioners in the area charge for similar services. If your doctor happens to charge more than what the insurance company considers "reasonable and customary," you'll probably have to make up the difference yourself. Traditionally, preventive care services like annual check-ups and pelvic exams haven't been covered under fee-for-service plans. But as the evidence mounts that preventive care can prevent more costly illnesses down the road, some insurers are including them.

Fee-for-service plans often include a ceiling for out-of-pocket expenses, after which the insurance company will pay 100 percent of any costs. Needless to say, the ceiling is usually pretty high.

In a nutshell, fee-for-service coverage offers flexibility in exchange for higher out-of-pocket expenses, more paperwork and higher premiums.

Managed care

Managed care has been around in one form or another since the 1930s, but it really took off in the last 10 years. As it grew, it evolved, leaving us with three basic types of managed care plans. Today, the majority of people with private health insurance have some type of managed care.

Although there are important differences among the different types of managed care plans, there are some similarities. All managed care plans involve an arrangement between the insurer and a selected network of health care providers, and they offer policyholders significant financial incentives to use the providers in that network. There are usually explicit standards for selecting providers and a formal procedure to assure quality care.

Preferred Provider Organizations (PPOs)

One step over the managed care border is the Preferred Provider Organization. PPOs have made arrangements for lower fees with a network of health care providers. PPOs give their policyholders a financial incentive to stay within that network.

For example, a visit to an in-network doctor might mean you'd have a $10 co-pay. If you wanted see an out-of-network doctor, you'd have to pay the entire bill up front and then submit the bill to your insurance company for an 80 percent reimbursement. In addition, you might have to pay a deductible if you choose to go outside the network, or pay the difference between what the in-network and out-of-network doctors charge.

With a PPO, you can refer yourself to a specialist without getting approval and, as long as it's an in-network provider, enjoy the same co-pay. Staying within the network means less money coming out of your pocket and less paperwork. Preventive care services may not be covered under a PPO.

Exclusive Provider Organizations are PPOs that look like HMOs. EPOs raise the financial stakes for staying in the network. If you choose a provider outside the network, you're responsible for the entire cost of the visit.

Point-of-Service (POS)

Point-of-service plans are similar to PPOs, but they introduce the gatekeeper, or Primary Care Physician. You'll need to choose your PCP from among the plan's network of doctors.

As with the PPO, you can choose to go out of network and still get some kind of coverage. In order to get a referral to a specialist, though, you usually must go through your PCP. You can still choose to refer yourself, but it'll mean more hassles and more money coming out of your pocket. If your PCP refers you to a doctor who is out of the network, the plan should pick up most of the cost. But if you refer yourself out, then you'll probably have to deal with more paperwork and a smaller reimbursement. You may also have to pay a deductible if you go outside the network.

POS plans may also cover more preventive care services, and may even offer health improvement programs like workshops on nutrition and smoking cessation, and discounts at health clubs.

Health Maintenance Organizations (HMOs)

Most of the time, when you talk about HMOs, you're really talking about closed-panel HMOs -- the least expensive, but least flexible type of health plan. They also tend to be geared more toward members of group plans than individuals.

In exchange for a low co-payment (or sometimes no co-pay at all), low premiums and minimal paperwork, an HMO requires that you only see its doctors, and that you get a referral from your primary care physician before you see a specialist. If you can still pick up the phone, you'll probably need to get clearance before you can visit the emergency room.

An HMO may have central medical offices or clinics (such as those used by Kaiser Permanente), or it may consist of a network of individual practices. In general, you must see HMO-approved physicians or pay the entire cost of the visit yourself. HMOs have the best reputation for covering preventive care services and health improvement programs.

Medical Insurance Basics

Today, buying health insurance is anything but simple. With a growing array of new policy choices, the arrangements you make for funding health care expenses will directly affect the way your care is delivered. Along with new scientific discoveries that have improved the detection and treatment of illnesses, the cost of care has risen astronomically in recent years.

Protecting against the financial consequences of an enormous medical bill is imperative for everyone. Without adequate medical insurance, your assets could be seriously depleted if you become ill or injured. Even a relatively short stay in the hospital can cost $20,000 or more.

Fortunately, most people are covered by some form of medical insurance issued through their employer or their spouse's employer. However, a "typical" group medical insurance policy is impossible to describe because of the many coverage variations found in today's marketplace.

The Move to Managed Care

Because of increasing medical care costs under the traditional indemnity system, in recent years many employers have sought more cost-effective ways to finance care for their employees. This trend resulted in a movement toward "managed care" plans, which promote more efficient use of medical services in order to contain treatment costs.

The two major types of managed care systems are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). These organizations contract with physicians and medical facilities to control care quality and costs; create financial incentives for subscribers to use the contracted physicians and facilities; and require providers to bear some financial risk for care.

HMOs

HMO patients pay fixed costs for medical care from health care providers belonging to the HMO. Instead of paying every time a service is delivered, HMO subscribers agree to pay periodic fees. In return, HMOs take care of all their subscribers' health care needs.

HMOs offer several cost advantages when compared with traditional indemnity plans. They rely on economies of scale to see that resources are used efficiently and that care is coordinated at one location. They also involve less administration, thereby reducing expenses. Since they emphasize preventive care,

HMOs tend to offer broader coverage such as routine physicals and medical screenings. HMOs also generally offer lower hospitalization rates. The downside to HMOs is that they require members to get treatment within the designated provider network. If you decide to obtain medical treatment outside the network, the HMO will not cover your care, except in certain emergencies. Even then, a member must notify the plan about the emergency as soon as possible. If you are on vacation in another country, you might not be covered -- even in an emergency.

Finally, some HMOs have been criticized for limiting their patients' medical options in order to control costs, or for impersonal treatment and "assembly-line" care.

Many HMO members tolerate these drawbacks because their out-of-pocket expenses are lower. Unlike traditional indemnity plans, HMOs do not require you to pay a deductible or coinsurance. Instead, you pay a fee (your "copayment"), typically no more than $15 for an office visit, and there is usually a minimal charge for preventive care such as routine physical exams and blood screenings.

PPOs

PPOs are contractual arrangements that provide services at a discount to a volume group of patients. Unlike HMOs, which are prepaid systems, PPO providers operate on a fee-for-service basis, similar to traditional indemnity arrangements. The rates, however, have been prenegotiated with those who contract for the providers' services, such as employers, unions, and insurance companies. In return for their discounted rates, the "preferred" group of doctors is guaranteed a specific volume of patients.

Unlike HMOs, PPOs allow you to use primary care providers outside the PPO network. Patients are given financial incentives to use doctors in the preferred group, however. These include small or no deductibles and lower coinsurance payments.

A variation of a PPO is called a point-of-service (POS) plan. With a POS, the medical care is channeled through the patient's primary care physician. Since only this doctor may refer the patient to other medical professionals, medical care decisions and their cost are under stricter control.

In choosing among HMOs, PPOs, and POSs, consider these issues:

Does the plan exclude preexisting conditions and require waiting periods for specific benefits? What are the out-of-pocket costs you must bear for each plan alternative? What is the plan's history of rate increases? (Some organizations may quote low prices at first.) Is the organization financially stable?

Group and Individual Insurance

Most private health insurance is sold as group medical insurance, which is provided by either employers or certain other organizations. Because many people and their families are covered by one overall policy, insurers discount the premiums. If your employer doesn't offer group coverage, you may be eligible to join a group organized by a fraternal, professional, or trade association.

If you become unemployed, you may be able to retain your group health insurance by converting it to an individual medical expense policy. However, your coverage may not be as extensive as under the group policy. If you leave a job or switch to reduced hours, you can continue your employer's coverage through the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Under COBRA, this coverage is for you, your spouse, and qualified dependents for up to eighteen months. For your spouse and dependents only, this period can be extended for up to thirty-six months if you die or become divorced. Once you become eligible for another group plan, the continued coverage will end. Once you leave a job, your employer must provide you with information describing your options under COBRA.

If you decide on an individual policy, coverage can be as much as 15 percent to 40 percent higher than comparable group coverage. Deductibles, copayments, and out-of-pocket expenses also will be higher. On the other hand, you are allowed to pick the deductibles, coinsurance arrangements, and health care providers.

Before you enroll in any health plan, determine which services are covered and how much you will pay in deductibles and coinsurance. If you are unable to get an individual policy because of a preexisting medical condition, many states offer health insurance risk pools, which provide coverage for high-risk groups.

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