Types of Medical Insurance « Health Insurance Advisory

Types of Medical Insurance

Health Maintenance Organization (HMO)

HMOs offer a wide range of comprehensive healthcare services through an exclusive panel of providers. Members of an HMO are required to select a Primary Care Physician (PCP). The PCP renders most healthcare services and approves visits to other physicians/ specialists if he/ she believe it is medically necessary. Medical care obtained from healthcare providers outside the HMO is generally not covered, except in emergency, life-threatening situations.

Since there are fewer healthcare providers to choose from and less freedom and flexibility to move about the system, HMOs generally charge their members small copayments for most services. HMOs also place much emphasis on preventive care services, such as check ups, immunizations and cancer screenings.

The distinct cost advantage that HMOs enjoyed many years ago has significantly eroded. As a result, the premium for HMO coverage is more than other types of health insurance.

An HMO may be right for you if you:

  • Want comprehensive healthcare coverage and “rich” benefits
  • Do not mind having your medical care coordinated through a Primary Care Physician
  • Value preventive care services, such as routine checkups and immunizations
  • Prefer low out-of-pocket costs for most healthcare services
  • Do not want an upfront deductible

An HMO may not be right for you if you:

  • Have a healthcare provider that is not in a participating provider of the HMO
  • Want the freedom and flexibility to choose your healthcare provider
  • Prefer to visit a specialist without a referral from a Primary Care Physician (PCP)
  • Want to pay a low premium for health insurance coverage

Preferred Provider Organization (PPO)

PPO Plans are the most popular type of managed care health insurance today. Individuals covered under a PPO Plan can choose from a broad network of healthcare providers and are not required to select a Primary Care Physician (PCP) or obtain referrals to visit a specialist. Since health insurance companies have negotiated deep discounts with network providers (15%-50% or more), covered persons will pay significantly less for healthcare when medical care is rendered by a participating provider. PPO Plans also cover healthcare services that are rendered out-of-network. Although this means treatment can be obtained from any non-participating provider, the covered person will usually pay significantly more out-of-pocket.

Like HMO Plans, many PPO Plans feature copayments for office visits, lab, x-ray and other services. More expensive services, such as surgery and hospitalization are subject to a calendar deductible and coinsurance. In recent years, in order to combat rising healthcare costs and insurance premiums, high deductible health plans have become very popular. These are also considered PPO Plans.

In recent years, high deductible health plans have given way to new cost saving arrangements, called Consumer Driven Health Plans (CDHP). Based on the premise that the high cost of health care and health insurance is partly attributable to the lack of consumerism, these plans are designed to get individuals directly involved with managing their own healthcare. The belief is that the consumption of healthcare goods and services will decrease if individuals shopped for healthcare the same way as they shop for an automobile, television or television.

CDHPs have been granted special tax status by the federal government to entice individuals to make better healthcare decisions and save money for the future. The most commonly known CDHP is a Health Savings Account (HSA).

An HSA is a bank account that is used in conjunction with a high deductible health plan or insurance policy, called HDHP. The HSA is designed to help fund the deductible and pay for other qualified out-of-pocket healthcare expenses, such as medical, dental, vision and over-the-counter medication with tax-free money. Monies deposited into an HSA are tax deductible and funds withdrawn to pay for healthcare expenses are not taxed. HSA monies can be invested and accumulate tax-free for retirement.

A PPO Plan may be right for you if you:

  • Prefer to retain your current physician/ healthcare provider
  • Want to visit a specialist without a referral from a Primary Care Physician (PCP)
  • Desire freedom and flexibility to obtain care from any healthcare provider
  • Would like HMO benefits with less restrictions
  • Need major insurance coverage with a low premium

A PPO Plan may not be right for you if you:

  • Have a healthcare provider that is not a participating provider
  • Live in a rural area where healthcare providers do not affiliate with a health plan or PPO
  • Want to pay a small amount of money out-of-pocket for healthcare services

Another variation of the PPO Plan is a High Deductible Plan paired with an HSA.  This may be right for you if you:

  • Need to save money by reducing your health insurance premium by 25% to 50%
  • Want to increase your spendable income by lowering federal and state tax liability, even if you do not itemize your deductions
  • Wish to grow your savings and accumulate money without paying taxes on interest or investment earnings
  • Have many out-of-pocket healthcare expenses, such as vision, dental and prescription drugs, including over-the-counter medications

A High Deductible Health Plan paired with an HSA may not be right for you if you:

  • Have minimal healthcare needs and want the convenience and comfort of copayments, rather than a calendar year deductible to satisfy.
  • Would rather pay a higher premium and pay out-of-pocket for office visits, lab work and prescription drugs

Point-of-Service plans (POS)

A manager care plan that resembles an HMO and PPO Plan. The covered person must select a primary care physician; however, unlike an HMO members may see any doctor or specialist without a referral. Coverage is also provided when medical care is obtained from a non-network provider. This added flexibility offers the covered person more control over his/ her healthcare.

Like any managed care plan, the covered person will save the most money by obtaining medical care from healthcare providers within the network because they have agreed to accept a reduced fee for their services.

A POS Plan may be right for you if you:

  • Like the coverage offered by an HMO, but want fewer restrictions
  • Do not mind having your medical care coordinated through a Primary Care Physician
  • Value preventive care services, such as routine checkups and immunizations

A POS Plan may not be right for you if you:

  • Have a healthcare provider that is not a participating provider
  • Want to pay a low premium for health insurance coverage

Indemnity Plans

Also known as fee-for-service (healthcare providers are paid a fee for each service they render), Indemnity Plans are the most traditional, flexible and expensive form of health insurance. Since these plans do not use a Preferred Provider Organization (PPO), the covered person obtains medical care from any healthcare provider he/ she wishes. There is no primary care physician and few cost containment rules or guidelines to follow.

Unlike HMO, PPO and POS Plans where in-network healthcare providers have agreed to accept a lower rate (negotiated rate) for their services, Indemnity Plans recognize and pay benefits based on the Reasonable and Customary (R&C) fee. Health insurance companies use their data or subscribe to an industry database in order to calculate the R&C amount. This means the covered member may owe the healthcare provider the difference between what their healthcare provider bills and the amount the insurance policy considers is the R&C rate for that particular service. This is not the case with HMO, PPO and POS Plans because the in-network healthcare provider cannot charge more than the negotiated rate.

Since Indemnity Plans do little in the way to manage care or control costs, they are usually the most expensive both in terms of the premium and out-of-pocket costs.

An Indemnity Plan may be right for you if you:

  • Want the most flexibility and choice
  • Live in a rural area where most healthcare providers are part of a health plan or network
  • Are more concerned about covering catastrophic types of healthcare expenses, such as surgery and hospitalization

An Indemnity Plan may not be right for you if you:

  • Want copayments for physician office visits, lab, x-ray and other services
  • Need a more economical form of health insurance
  • Want coverage for preventive care
  • Prefer to pay healthcare providers after the services are rendered
  • Do not want to file claim forms

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