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
With an indemnity plan (sometimes called fee-for-service),
you can use any medical provider (such as a doctor and hospital).
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
is a form of managed care closest to an indemnity plan. A PPO
has arrangements with doctors, hospitals, and other providers
of care who have agreed to accept lower fees from the insurer
for their services. As a result, your cost sharing should be
lower than if you go outside the network. In addition to the
PPO doctors making referrals, plan members can refer themselves
to other doctors, including ones outside the plan.
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
are the oldest form of managed care plan. HMOs offer members
a range of health benefits, including preventive care, for a
set monthly fee. 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.
If you belong to an HMO, the plan only covers
the cost of charges for doctors in that HMO. If you go outside
the HMO, you will pay the bill. This is not the case with point-of-service
plans.
Point-of-Service (POS) Plan. Many HMOs offer
an indemnity-type option known as a POS plan. The primary care
doctors in a POS plan usually make referrals to other providers
in the plan. But in a POS plan, members can refer themselves
outside the plan and still get some coverage.
If the 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.
