The Types of Health Insurance

Health insurance plans are usually described as either indemnity (fee-for-service) or managed care. These types of plans differ in important ways that are described below. With any health plan, however, there is a basic premium, which is how much you or your employer pay, usually monthly, to buy health insurance coverage. In addition, there are often other payments you must make, which will vary by plan. In considering any plan, you should try to figure out its total cost to you and your family, especially if someone in the family has a chronic or serious health condition.

Indemnity and managed care plans differ in their basic approach. Put broadly, the major differences concern choice of providers, out-of-pocket costs for covered services, and how bills are paid. Usually, indemnity plans offer more choice of doctors (including specialists, such as cardiologists and surgeons), hospitals, and other health care providers than managed care plans. Indemnity plans pay their share of the costs of a service only after they receive a bill.

Managed care plans have agreements with certain doctors, hospitals, and health care providers to give a range of services to plan members at reduced cost. In general, you will have less paperwork and lower out-of-pocket costs if you select a managed care type plan and a broader choice of health care providers if you select an indemnity-type plan.

Over time, the distinctions between these kinds of plans have begun to blur as health plans compete for your business. Some indemnity plans offer managed care-type options, and some managed care plans offer members the opportunity to use providers who are "outside" the plan. This makes it even more important for you to understand how your health plan works.

Besides indemnity plans, there are basically three types of managed care plans: PPOs, HMOs, and POS plans.

Indemnity Plan

Also known as traditional or fee-for-service plans . allow you to choose any doctor or hospital you want. In return, you pay an annual deductible, then a percentage of your medical bill. Although these plans offer the greatest freedom to select any doctor, they are usually the most expensive option available. You or they send the bill to the insurance company, which pays part of it. Usually, you have a deductible. such as $200. to pay each year before the insurer starts paying.

Once you meet the deductible, most indemnity plans pay a percentage of what they consider the "Usual and Customary" charge for covered services. The insurer generally pays 80 percent of the Usual and Customary costs and you pay the other 20 percent, which is known as coinsurance. If the provider charges more than the Usual and Customary rates, you will have to pay both the coinsurance and the difference.

The plan will pay for charges for medical tests and prescriptions as well as from doctors and hospitals. It may not pay for some preventive care, like checkups.

Managed Care

Preferred Provider Organization (PPO). A PPO combine elements of indemnity and managed care plans. Each time you need care, you choose among doctors who belong to the PPO network or any non-network doctor. You pay less when you use the network's "preferred providers." However, you can see any doctor any time you wish, usually without getting an okay from the plan first. If you choose not to use the plan's preferred providers, you will probably have to pay more for care .

If you go to a doctor within the PPO network, you will pay a copayment (a set amount you pay for certain services. say $10 for a doctor or $5 for a prescription). Your coinsurance will be based on lower charges for PPO members.

If you choose to go outside the network, you will have to meet the deductible and pay coinsurance based on higher charges. In addition, you may have to pay the difference between what the provider charges and what the plan will pay.

Health Maintenance Organization (HMO). HMOs require that you pay a small, set copayment when you use the plan's HMO doctors. You generally don't have to pay a deductible in an HMO. You usually select a primary care physician who manages all of your health care and serves as a gatekeeper for specialty care. If you go to doctors who are not in the HMO, you pay the full cost of the care (unless it's an emergency situation). Most HMOs are relatively inexpensive, offer preventive care services, and have special programs for disease management

There are many kinds of HMOs. If doctors are employees of the health plan and you visit them at central medical offices or clinics, it is a staff or group model HMO. Other HMOs contract with physician groups or individual doctors who have private offices. These are called individual practice associations (IPAs) or networks.

HMOs will give you a list of doctors from which to choose a primary care doctor. This doctor coordinates your care, which means that generally you must contact him or her to be referred to a specialist.

With some HMOs, you will pay nothing when you visit doctors. With other HMOs there may be a copayment, like $5 or $10, for various services.

Point-of-Service (POS) Plan. Many HMOs offer an indemnity-type option known as a POS plan. POS plans or Open Access HMOs add an out-of-network benefit to HMOs. Like HMOs, you select a primary care physician who manages all of your care and is responsible for referring you to plan specialists.

In a POS plan however, you have the option of going outside the HMO network (although youšll pay more for care received outside of the network).