Types of Health Insurance « Health Insurance Advisory

Different types of health insurance

With so many acronyms, such as HMO, PPO, CDHP, HSA and POS, it is often challenging to understand the different types of medical insurance. The following is an explanation of each, along with the pros and cons to help you decide what type of medical insurance plan is best for you.

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. Historically, HMOs placed much emphasis on preventive care services, such as check ups, immunizations and cancer screenings. Since the enactment of the new healthcare law, however, all comprehensive major medical insurance plans (employer sponsored group health plans and individual medical insurance plans) are required to cover preventive care screening services at not cost. As a result, the playing field has been leveled and the same type of preventive care screening services are covered across most forms of medical insurance subject to the new healthcare law.

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 medical insurance.

An HMO may be right for you if you:

  • Want comprehensive medical insurance coverage and “rich” benefits
  • Do not mind having your medical care coordinated through a Primary Care Physician
  • 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 medical 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 medical 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 medical insurance plans paired with an Health Savings Account (HSA) have become very popular. These are also classified as PPO Plans.

In recent years, high deductible medical insurance plans have given way to new cost saving arrangements, called Consumer Driven Health Plans or Arrangements (CDHP). Based on the premise that the high cost of healthcare and medical insurance is partly attributable to the lack of consumerism, these health insurance 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, computer or HDTV.

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 medical insurance plan or health insurance policy, called HDHP (short for High Deductible Health Plan). The HSA is designed to help fund the deductible and pay for other qualified out-of-pocket healthcare expenses, such as medical, dental and vision expenses 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 comprehensive major medical 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 medical plan or PPO
  • Want to pay a small amount of money out-of-pocket for healthcare services

In addition to a PPO Plan, a high deductible medical insurance plan paired with an HSA 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

In addition to a PPO Plan, a high deductible medical insurance 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 less out of pocket for office visits, lab work and prescription drugs

Point of Service Plans (POS)

POS Plans are manage care plans that resemble both an HMO and PPO Plan. The covered individual 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 individual 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

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 medical insurance coverage

Indemnity Plans

Indemnity Plans are the most traditional, flexible and usually most expensive type of medical insurance plan. Since these medical insurance plans do not use a Preferred Provider Organization (PPO), covered individuals obtain 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. Medical insurance companies use their data or subscribe to an industry database in order to calculate the R&C amount. This means the covered individual may owe the healthcare provider the difference between what their healthcare provider bills and the amount the medical insurance policy considers 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 cost.

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 medical insurance
  • Do not want to file claim forms

Guaranteed Health Insurance (also called Mini Med, Limited Medical Insurance and Health Insurance for Pre Existing Conditions)

These medical insurance plans pay a fixed dollar amount per covered procedure or healthcare service and/or supply regardless of how much the healthcare provider bills. As a result, they are considered supplemental medical insurance, not comprehensive major medical insurance. Guaranteed Health Insurance Plans are considered the cheapest health insurance because the premiums are often less than an individual comprehensive major medical insurance plan.  They are not meant to replace comprehensive major medical insurance. Individuals, however, who cannot qualify for an individual comprehensive major medical insurance plan due to pre existing medical conditions can usually qualify for this type of medical insurance, as these Guaranteed Health Insurance Plans do not require the applicant qualify medically for coverage. However, as with virtually all types of medical insurance, existing health conditions are subject to a pre existing condition limitation provision. This means that pre existing medical conditions are not covered until a period of consecutive enrollment under the policy, usually 12 months.

Guaranteed Health Insurance may be right for you if you:

  • Cannot qualify or have been turned down for comprehensive major medical insurance due to an existing medical condition
  • Are unable to afford an individual comprehensive major medical insurance plan
  • Have a comprehensive major medical insurance plan, but desire additional, supplemental medical insurance coverage to help pay the out of pockets costs (deductibles, copays, etc.)
  • Feel you do not need medical insurance, but at least want some protection and a medical ID Card to get access to the healthcare system should you need healthcare

Guaranteed Health Insurance may not be right for you if you:

  • Need greater financial protection
  • Want coverage for a broader array of healthcare services and supplies and prescription drugs

Short Term Medical Insurance

Designed to cover a 12 month period or less, these medical insurance plans expire at the end of the specified timeframe. They cannot be renewed and you must reapply for a new short term medical insurance policy after coverage expires. Premiums for Short-Term Medical Insurance are significantly less than comprehensive major medical insurance that has no policy expiration date.

Short-Term Medical Insurance may be right for you if you:

Short-Term Medical Insurance may not be right for you if you:

  • Need a permanent medical insurance plan

Critical Illness Protection

Critical Illness Insurance is special health insurance that pays a lump-sum cash benefit upon the diagnosis of a critical illness or condition, such as cancer, stroke, heart attack, coronary artery bypass surgery, organ transplant, kidney failure, multiple sclerosis or paralysis. It helps prevent financial strain that is often associated with a major illness.

Critical Illness Protection may be right for you if you:

  • Are covered under a high deductible insurance policy and want additional financial protection toward meeting the deductible
  • Desire a cash benefit if you or a family member suffer a critical illness

Critical Illness Protection may not be right for you if you:

  • Have a low deductible medical insurance plan or are enrolled in an HMO where your out-of-pocket exposure for healthcare services, such as surgery and hospitalization is low

Healthinsuranceadvisory.org can help you save money on a wide assortment of health insurance plans, including individual medical insurance, individual dental insurance, short term medical insurance, critical illness protection and health insurance for pre existing conditions.

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