What’s the Best Choice?

Some basic information about the kinds of health insurance plans available today will help you choose the health insurance coverage that is right you, while keeping your costs low.

By reviewing the following information you will:

Learn the basics of each type of health insurance plan.

Know the advantages and disadvantages of each type of health coverage.

Currently, most health insurance plans fall into two basic categories: fee-for-service (sometimes called indemnity) plans and managed care (HMO, PPO, POS) plans. The distinctions between these kinds of plans have begun to blur as health plans compete to provide what consumers want – choice of doctors and ways to lower costs.

Until the early 1980s, fee-for-service plans were the primary source of health coverage for most Americans. As medical costs began to sky-rocket, the need for cost controls to keep coverage affordable led to the creation of managed care plans.

The earliest of the managed care programs were the health maintenance organizations or HMOs. Many who joined HMO plans were unhappy with the limits to choice, especially the inability to choose their own doctors and specialists. In response, a new type of managed care plan, the preferred provider organization or PPO was developed. PPOs offered the opportunity to choose doctors from a preferred provider list, and combined some of the features of fee-for-service plans, such as deductibles, co-payments and co-insurance to control costs.

Fee-for-Service or Indemnity Plans

Fee-for-service or indemnity health insurance plans are contracts (the insurance policy) between you (or your employer) and an insurance company. The insurance company agrees to pay the fees charged for covered medical services when used, in exchange for your payment (premium) each year. Except for certain conditions such as fraud, the policy usually guarantees that you can renew it each year regardless of your health, as long as you pay the premium. Of course, the company can, and often does, raise the premium. Coverage for prescription drugs may be included in the plan, or offered as a separate option.

One of the most common forms of indemnity plans is called major medical insurance. This coverage focuses on hospitalization costs rather than everyday healthcare costs. It is designed to protect the policy holder from the big medical expenses that are a real risk in today’s healthcare world.

How a Fee-for Service Plan Works

After visiting your doctor’s office, during which you make a co-payment, the staff may forward the necessary paperwork to your insurance company for reimbursement of “covered” medical expense. If your doctor does not provide this service, it is your responsibility to complete this paperwork and file the claim yourself. The insurance company will reimburse you or the doctor for covered expenses up to a rate that is usual, customary and reasonable (UCR) for your geographic area.

This is where your deductible kicks in. Health insurance plans will not reimburse expenses until you have paid total expenses for the year equal to your deductible. If you have previously paid for medical expenses up to your deductible, your health plan will reimburse you or the doctor a percentage of the charges based on your co-insurance, for example 80% if you have 80/20 co-insurance. In addition, if the doctor’s fees are higher than the UCR rate, you must pay the difference.

Finally, and most important, health insurance plans will pay 100% of covered medical expenses once the out-of-pocket maximum is reached. However, be aware of UCR rates!

A recently news story told of a couple whose daughter was involved in a serious car accident. They sought the best care, and the hospital accepted their insurance plan. When the bills came in, the medical charges were higher than the UCR rates followed by the insurance company. Despite the fact that their out-of-pocket maximum was $5,000, they discovered that an additional $43,000 was owed beyond what their insurance would pay.

Managed Care Plans

Managed Care Health Insurance Plans were established to control costs of health care. They do so through contracts with doctors and hospitals which set predetermined fees for provided services.

In addition, controls on the use of medical services, such as medical tests, certain surgeries, admission and length of stay in a hospital are set by administrative policy to keep costs down.

HMO Plans

HMOs provide comprehensive health care services for members, including preventative care; for monthly premium.

There are three types of HMO Health Insurance Plans: Medical Groups, Staffed Facilities, and Independent Practice Associations (IPA). The Medical Groups are usually a group of physicians with various specialties practicing in one facility. The HMO contracts with the group to provide services, and you are referred to specialist within the group. In the Staff form of HMO, physicians and staff are employees of the HMO, which may also own the facilities. Medical service are provided directly by the HMO. The Independent Practice Association (IPA) is a network of individual physicians who contract with the HMO and have their own offices operating independently of each other.

How an HMO Plan Works

HMOs provide a broad array of health care services within their network of providers. In most HMOs, you must use doctors, therapists, and hospitals that are part of the HMO’s network, unless it is an emergency. If you go outside the HMO network, you will pay the bill.

HMOs give you a list of doctors from which to choose a primary care doctor. All your care is arranged and approved through your primary care doctor, including referrals to specialists when necessary.

With some HMOs there may be a small co-payment for various services, otherwise, there are no additional costs for medical or hospital care. If you require hospital care, you often must seek pre-approval before admittance.

In recent years, HMO health insurance plans have faced intense criticism with regard to their tight controls over the use of medical services. Plan administrators have been accused of taking medical decisions out of the hands of doctors for the sake of cost savings. Accusations of dangerously shortened hospital stays, denied treatments and insensitivity to patients’ needs have been responded to with congressional hearings and reform bills in state legislatures. Some states have passed bills allowing HMO participants to sue if denied medically necessary treatment. This controversy, as well as the desire for more control over choosing a doctor, has led to the growth of the HMO IPA model and Preferred Provider Organizations – PPOs.

PPO Plans

A Preferred Provider Organization contracts with doctors, hospitals and other providers who agree to offer services at lower fees than you would pay outside the plan. You can choose your own physician within this network of independent doctors. You can also choose a doctor who is a specialist in an area for which you need regular attention. Like fee-for service plans, PPOs also use deductible, co-payment, and co-insurance options.

How an PPO Plan Works

These health insurance plans provided a list of the PPO doctors or “preferred providers, and you can see anyone on that list. Once you select a doctor, check to be sure that new patients are being accepted. When making an office visit, you will share in the cost with a co-payment. The office staff will generally take care of the paperwork for reimbursement.

As in an fee-for service plan, you must first pay accumulated expenses equal to your annual deductible before the PPO begins to share costs with you. They will then share costs based on the co-insurance (with 80/20 you will pay 20%). As in fee-for-service plans, out-of-pocket maximums and lifetime limits also apply.

Unlike the HMO, you may refer yourself to a doctor outside of the plan’s preferred provider list, but you will be penalized with higher co-pay and/or co-insurance amounts and may be responsible for any difference in fees.

POS Plans

Many HMO health insurance plans offer an fee-for-service option known as a POS plan. A POS offers more flexibility in choosing doctors than HMOs, but premiums are likely to be somewhat higher.

How a POS Plan Works

Like an HMO, the POS gives you a list of doctors from which you choose a primary care physician who coordinates your medical care. If the POS doctor makes a referral out of the network, the plan pays all or most of the bill. If you refer yourself to a provider outside the network and the service is covered by the plan, you will have to pay coinsurance.

With the exception of a primary care physician coordinating care and paying in full for services referred outside of the plan, POS health insurance plans operate much like PPOs. Doctors maintain their own offices and are contracted by the HMO to provide services at predetermined fees.

Health Plan Advantages and Disadvantages

Fee-for-Service Plans

Advantages :

Freedom to choose doctors and hospital care.
Can utilize specialists at your discretion.

Disadvantages :

Tends to be the most expensive type of coverage
Includes costs for co-payments, deductibles and co-insurance in addition to premium.
Little focus on preventative care and education.
May have to file paperwork yourself for claims.

HMO Plans

Advantages :

Offers the most comprehensive healthcare with little out-of-pocket cost beyond premium.
Emphasizes preventative health care and education.
No filing of claim forms.

Disadvantages :

Very restricted choice of doctors and hospitals.
Decisions on medical care usage subject to cost-saving policies of HMO administration.
No coverage outside of the HMO network.
Must get referral to see a specialist.
Must get approval for hospital admission.
Situations covered as emergency care very limited

PPO Plans

Advantages :

Generally good choice of doctors, including specialists, within the network.
Can use doctors outside the network and still receive partial coverage.
Seeing a specialist does not require a referral.
Costs tend to be lower than fee-for-service plan.

Disadvantages :

Higher costs to see doctors outside the network.
Out-of-pocket expenses are greater than HMO due to deductibles and co-insurance.

POS Plans

Advantages :

Better choice of doctors and specialist than HMO within the network.
The PPO network can be nation wide affording network protection while traveling in the U.S. or for a relocation.
Can be referred to doctors outside the network and still receive some coverage.

Disadvantages :

Your care is managed through a primary care doctor requiring referrals to specialist.
Higher costs to see doctors outside the plan.
Out-of-pocket expenses are greater than HMO due to deductibles and co-insurance.
Must get approval for hospital admission.