Using a Health Plan
should know about the different types of health
plans that are available today.
Health care in America is
changing rapidly. Twenty-five years ago, most people
in the United States had indemnity insurance
coverage. A person with indemnity insurance could go
to any doctor, hospital, or other provider (which
would bill for each service given), and the
insurance and the patient would each pay part of the
But today, more than half of all
Americans who have health insurance are enrolled in
some kind of managed care plan, an organized way of
both providing services and paying for them.
Different types of managed care plans work
differently and include preferred provider
organizations (PPOs), health maintenance
organizations (HMOs), and point-of-service (POS)
You've probably heard these terms
before. But what do they mean, and what are the
differences between them? And what do these
differences mean to you?
This article can help you make
sense of your choices for getting health care
- See the questions and answers on important
things you should know when "Choosing a Plan."
- To get the most out of the plan you choose,
see the tips in the section "Using Care."
- For more help, see "Sources of Additional
Even if you don't get to choose
the health plan yourself (for example, your employer
may select the plan for your company), you still
need to understand what kind of protection your
health plan provides and what you will need to do to
get the health care that you and your family need.
The more you learn, the more
easily you'll be able to decide what fits your
personal needs and budget.
Choosing a Plan
What Are My Health Plan Choices?
Choosing between health plans is
not as easy as it once was. Although there is no one
"best" plan, there are some plans that will be
better than others for you and your family's health
needs. Plans differ, both in how much you have to
pay and how easy it is to get the services you need.
Although no plan will pay for all the costs
associated with your medical care, some plans will
cover more than others.
Almost all plans today have ways
to reduce unnecessary use of health care -- and keep
down the costs of health care, too. This may affect
how easily you get the care you want, but
should not affect how easily you get the care you
Plans change from year to year,
so you should carefully consider each plan, using
the questions outlined in this article. If you get
health insurance where you work, you should start
with your employee benefits office. Its staff should
be able to tell you what is covered under the plans
available. You can also call plans directly to ask
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
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.
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
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.
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 co-payment (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
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 co-payment, like $5 or $10, for
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
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
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.
Primary Care Doctors
Your primary care doctor will
serve as your regular doctor, managing your care and
working with you to make most of the medical
decisions about your care as a patient. In many
plans, care by specialists is only paid for if your
are referred by your primary care doctor.
An HMO or a POS plan will provide
you with a list of doctors from which you will
choose your primary care doctor (usually a family
physician, internists, obstetrician-gynecologist, or
pediatrician). This could mean you might have to
choose a new primary care doctor if your current one
does not belong to the plan.
PPOs allow members to use primary
care doctors outside the PPO network (at a higher
cost). Indemnity plans allow any doctor to be used.
Where Do I Get These Health Plans?
You may be able to get group
health coverage -- either indemnity or managed care
-- through your job or the job of a family member.
Many employers allow you to join
or change health plans once a year during open
enrollment. But once you choose a plan, you must
keep it for a year. Discuss choices and limits with
your employee benefits office.
If you are self-employed or if
your company does not offer group policies, you may
need to buy individual health insurance. Individual
policies cost more than group policies.
Some organizations -- such as
unions, professional associations, or social or
civic groups -- offer health plans for members. You
may want to talk to an insurance broker, who can
tell you more about the indemnity and managed care
plans that are available for individuals. Some
States also provide insurance for very small groups
or the self-employed.
Americans age 65 or older and
people with certain disabilities can be covered
under Medicare, a Federal health insurance program.
In many parts of the country,
people covered under Medicare now have a choice
between managed care and indemnity plans. They also
can switch their plans for any reason. However, they
must officially tell the plan or the local Social
Security Office, and the change may not take effect
for up to 30 days. Call your local Social Security
office or the State office on aging to find out what
is available in your area.
Medicaid covers some low-income
people (especially children and pregnant women), and
disabled people. Medicaid is a joint Federal-State
health insurance program that is run by the States.
In some cases, States require
people covered under Medicaid to join managed care
plans. Insurance plans and State regulations differ,
so check with your State Medicaid office to learn
A pre-existing condition is a
medical condition diagnosed or treated before
joining a new plan. In the past, health care given
for a pre-existing condition often has not been
covered for someone who joins a new plan until after
a waiting period. However, a new law -- called the
Health Insurance Portability and Accountability Act
-- changes the rules.
Under the law, most of which goes
into effect on July 1, 1997, a pre-existing
condition will be covered without a waiting period
when you join a new group plan if you have been
insured the previous 12 months. This means that if
you remain insured for 12 months or more, you will
be able to go from one job to another, and your
pre-existing condition will be covered -- without
additional waiting periods -- even if you have a
If you have a pre-existing
condition and have not been insured the previous 12
months before joining a new plan, the longest you
will have to wait before you are covered for that
condition is 12 months.
To find out how this new law
affects you, check with either your employer
benefits office or your health plan.
What Plan Benefits Are Offered?
Most plans provide basic medical
coverage, but the details are what counts. The best
plan for someone else may not be the best plan for
you. For each plan you are considering, find out how
- physical exams and health screenings
- care by specialists
- hospitalization and emergency care
- prescription drugs
- vision care
- dental services
Also ask about:
- care and counseling for mental health
- services for drug and alcohol abuse
- obstetrical-gynecological care and family
- ongoing care for chronic (long-term) diseases,
conditions, or disabilities
- physical therapy and other rehabilitative care
- home health, nursing home, and hospice care
- chiropractic or alternative health care, such
- experimental treatments
Some plans offer members health
education and preventive care, but services differ.
Ask questions such as:
- What preventive care is offered, such as shots
- What health screenings are given, such as
breast exams and Pap smears for women?
- Does the plan help people who want to quit
What Is Most Important to Me in a Plan?
In choosing a plan, you have to
decide what is most important to you. All plans have
tradeoffs. Ask yourself these questions:
- How comprehensive do I want coverage of health
care services to be?
- How do I feel about limits on my choice of
doctors or hospitals?
- How do I feel about a primary care doctor
referring me to specialists for additional care?
- How convenient does my care need to be?
- How important is the cost of services?
- How much am I willing to spend on premiums and
other health care costs?
- How do I feel about keeping receipts and
You might also want to think
about whether the services a plan offers meet your
needs. Call the plan for details about coverage if
you have questions. Consider:
- life changes you may be thinking about, such
as starting a family or retiring
- chronic health conditions or disabilities that
you or family members have
- if you or anyone in your family will need care
for the elderly
- care for family members who travel a lot,
attend college, or spend time at two homes
How Do I Compare Health Plans?
After you review what benefits
are available and decide what is important to you,
you can compare plans. Many things should be
considered. These include services offered, choice
of providers, location, and costs. The quality of
care is also a factor to think about (see section
Look at the services offered by
each plan. What services are limited or not covered?
Is there a good match between what is provided and
what you think you will need? For example, if you
have a chronic disease, is there a special program
for that illness? Will the plan provide the
medicines and equipment you may need?
Find out what types of care or
services the plan won't pay for. These usually are
Few indemnity and managed care
plans cover treatments that are experimental. Ask
how the plan decides what is or is not experimental.
Find out what you can do if you disagree with a
plan's decision on medical care or coverage.
What doctors, hospitals, and
other medical providers are part of the plan? Are
there enough of the kinds of doctors you want to
see? Do you need to choose a primary care doctor? If
you want to see a specialist, can you refer yourself
or must your primary care doctor refer you? Do you
need approval from the plan before going into the
hospital or getting specialty care?
Where will you go for care? Are
these places near where you work or live? How does
the plan handle care when you are away from home?
No health insurance plan will
cover every expense. To get a true idea of what your
costs will be under each plan, you need to look at
how much you will pay for your premium and other
- Are there deductibles you must pay before the
insurance begins to help cover your costs?
- After you have met your deductible, what part
of your costs are paid by the plan?
- Does this amount vary by the type of service,
doctor, or health facility used?
- Are there co-payments you must pay for certain
services, such as doctor visits?
- If you use doctors outside a plan's network,
how much more will you pay to get care?
- If a plan does not cover certain services or
care that you think you will need, how much will
you have to pay?
- Are there any limits to how much you must pay
in case of major illness?
- Is there a limit on how much the plan will pay
for your care in a year or over a lifetime? A
single hospital stay for a serious condition could
cost hundreds of thousands of dollars.
You can't know in advance what
your health care needs for the coming year will be.
But you can guess what services you and your family
might need. Figure out what the total costs to your
family would be for these services under each plan.
How Do I Find Out about Quality?
Quality is hard to measure, but
more and more information is becoming available.
There are certain things you can look for and
questions you can ask. Whatever kind of plan you are
considering, you can check out individual doctors
and hospitals. For doctors, see "Tips on Choosing a
Many managed care plans are
regulated by Federal and State agencies. Indemnity
plans are regulated by State insurance commissions.
Your State Department of Health or insurance
commission can tell you about any plan you are
You can also find out if the
managed care plan you are interested in has been
"accredited," meaning that it meets certain
standards of independent organizations. Some States
require accreditation if plans serve special groups,
such as people in Medicaid. Some employers will only
contract with plans that are accredited.
Several national organizations
review and accredit plans and institutions (see
"Sources of Additional Information"). You can
contact these organizations to see if a plan you are
considering, or an institution in the plan, is
Another approach is to ask the
plan how it ensures good medical care. Does the plan
review the qualifications of doctors before they are
added to the plan? Plans are supposed to review the
care that is given by their doctors and hospitals.
How does the plan review its own services, and has
it made changes to correct problems? How does the
plan resolve member complaints?
Some managed care plans survey
members about their health care experiences. Ask the
plan for a report of the survey results.
Some plans and independent
organizations are also beginning to produce "report
cards." These reports often include satisfaction
survey results and other information on quality,
such as if a plan provides preventive care (for
example, shots for children and Pap smears for
women) or if the plan follows up on test results.
Report cards may also include information on how
many members stay in or leave the plan, how many of
the plan's doctors are board certified, or how long
you may have to wait for an appointment.
Report cards can only give you an
idea of how a plan works and may not give a full
picture of a plan's quality. Ask plans if their
activities have been reported in report cards
developed by outside groups (business or consumer
Also keep any eye out for
magazine articles that rate health plans.
Finally, you can talk to current
members of the plan. Ask how they feel about their
experiences, such as waiting times for appointments,
the helpfulness of medical staff, the services
offered, and the care received. If there are
programs for your particular condition, how are the
patients in it doing?
Tips on Choosing a Doctor
Your doctor will be your partner
in care, so it is important to choose carefully from
the doctors available to you. In some managed care
plans, you will generally be limited to choosing
from only certain doctors; in other plans, some
doctors may be "preferred," which means they are
part of a network and you will pay less if you use
them. Ask your plan for a list or directory of
providers. The plan may also offer other help in
You can ask doctors you know,
medical societies, friends, family, and coworkers to
recommend doctors. You may also contact hospitals
and referral services about doctors in your area.
Once you have the names of
doctors who interest you, make sure they are
accepting new patients. Here's how to check doctors
- Ask plans and medical offices for information
on their doctors' training and
- Look up basic information about doctors in the
Directory of Medical Specialists, available at
your local library. This reference has up-to-date
professional and biographic information on about
400,000 practicing physicians.
- Use "AMA Physician Select," which is the
American Medical Association's free service on the
Internet for information about physicians (
You may also want to find out:
- Is the doctor board certified? Although all
doctors must be licensed to practice medicine,
some also are board certified. This means the
doctor has completed several years of training in
a specialty and passed an exam. Call the American
Board of Medical Specialties at 800-776-2378 for
- Have complaints been registered or
disciplinary actions taken against the doctor? To
find out, call your State Medical Licensing Board.
Ask Directory Assistance for the phone number.
- Have complaints been registered with your
State department of insurance? (Not all
departments of insurance accept complaints.) Ask
Directory Assistance for the phone number.
Once you have narrowed your
search to a few doctors, you may want to set up "get
acquainted" appointments with them. Ask what charge
there might be for these visits, if any. Such
appointments give you a chance to interview the
doctors -- for example, to find out if they have
much experience with any health conditions you may
How Can I Get the Most from My Plan?
You will get the best care if
Read your health insurance policy and member
handbook. Make sure you understand them,
especially the information on benefits, coverage,
and limits. Sales materials or plan summaries
cannot give you the full picture.
See if your plan has a magazine or newsletter.
It can be a good source of information on how the
plan works and on important policies that affect
Talk to your health benefits officer at work
to learn more about your policy.
Ask how the plan will notify you of changes in
the network of providers or covered services while
you are part of the plan.
Ask your doctor about regular screenings to
check your health. Discuss your risk of getting
certain conditions. What lifestyle choices and
changes might you need to make to lower your risks
or prevent illness?
Ask questions and insist on clear answers.
Ask about the risks and benefits of tests and
treatments. Tell your doctor what you like and
dislike about your choices for care.
Make sure you understand and can follow the
doctor's instructions. You may want to bring
another person along or take notes to help you
Write down your concerns. Start a health log
of symptoms to help you better explain any health
problems when you meet with your doctor.
Set up health files for family members at
home. This will help you to monitor care. Include
health histories of shots, illnesses, treatments,
and hospital visits. Ask for copies of lab
results. Keep a list of your medicines, noting
side effects and other problems (such as other
drugs and foods that should not be taken at the
How Do I Obtain Care?
Learning what you can expect from
your health plan and how it works are key steps to
getting the care you need. Ask these questions:
- When are the offices open? What if I need care
- How do I make appointments? How quickly can I
expect to be seen for illness or for routine care?
- If I need lab tests, are they done in the
doctor's office or will I be sent to a laboratory?
- Will most of my appointments be with the
primary care doctor? Will nurse practitioners or
physician's assistants sometimes give care as
- Is there an advice hotline? Some plans have
toll-free phone services that help members decide
how to handle a problem that may not require a
Find out how your plan provides
care outside the service area and what you must do
to get care. This is especially important if you
travel often, are away from home for long periods,
or have family members away at school.
What If I Have to Go to the Hospital?
The time to find out what rules
your plan has on hospital care is before you need
Unless it is a medical emergency,
your health plan or primary care doctor will
probably have to give advance approval (preadmission
certification) for you to go to the hospital.
Otherwise, the cost of your hospital care may not be
covered. Ask these questions:
- What hospitals are part of the plan network?
- Is there a limit on how long I can stay in the
- Who decides when I am to be discharged?
- Will needed follow-up care, such as nursing
home or home health care, be covered by the plan?
- If I have a serious medical problem, will the
plan provide someone to oversee care and make sure
my needs are met?
Ask how your plan handles getting
a second doctor's opinion on whether surgery or
another treatment is needed. Are second opinions
encouraged or required? Who pays?
Emergency or Urgent Care
If you have a true medical
emergency, you should go to the nearest hospital as
fast as possible. It is important for you to know
what kind of medical problems are defined as
emergencies and how to arrange for ambulance
service, if needed. Most plans must be told within a
certain time after emergency admission to a
hospital. If the hospital is not part of the plan
network, you may be transferred to a network
hospital when your condition is stable. Ask these
- How does the plan define "emergency care?"
What conditions or injuries are considered
- How does the plan handle "urgent care" after
normal business hours? Urgent care is for problems
that are not true emergencies but still need quick
medical attention. Check with your plan to find
out what it considers to be urgent care. Examples
may include sore throats with fever, ear
infections, and serious sprains. Call your primary
care doctor or the plan's hotline for advice about
what to do. The plan may also have urgent care
centers for members.
- How do I get urgent care or hospital care if I
am out of the area? How must I tell the plan and
how soon after I get the care?
What If I Am Not
Satisfied with My Care?
Getting the best care and
services means understanding how your health plan
works, what your rights are, and how to complain if
you need to. You have the right to get copies of test
results as well as medical information about
yourself. If you are in a managed care plan, you can
ask to change your primary care doctor if you are
unhappy with the relationship. You may also be able
to switch plans during open enrollment.
Most plans have an appeals
process that both you and your doctor may use if you
disagree with the plan's decisions. If your plan
refuses to provide or pay for services, you can
complain or file a grievance about any decision you
feel is unfair -- or you can appeal it.
You can contact the member
services division of your plan for more information
or to complain. Use your plan's complaint process
fully before taking other action.
Be sure to keep written records
- all correspondence with the plan
- claims forms and copies of bills
- phone conversations -- the date and time, the
people you speak with, and the nature of each call
If the plan does not satisfy you,
you may decide to bring the matter to the attention
of your employee benefits manager, your State
insurance commissioner, your State department of
health, or the legal system. If you are a Medicare
or Medicaid beneficiary, you have additional ways
through those programs to file a grievance about the
care received from a plan or provider. For
information, contact your State's medical Peer
Review Organization or State Medicaid Program.
Sources of Additional Information
Many organizations have
information that can help you understand your health
care choices. Some helpful materials and contacts
Checkup on Health Insurance Choices
Questions To Ask Your Doctor Before You Have Surgery
Agency for Health Care Policy and Research
P.O. Box 8547
Silver Spring, MD 20907
The Consumers Guide to Health Insurance
Health Insurance Association of America
555 13th St. N.W., 600 East
Washington, DC 20004-1109
Guide to Health Insurance for People with
Your Medicare Handbook
Managed Care Plans
Health Care Financing Administration
7500 Security Blvd.
Baltimore, MD 21244-1850
Putting Patients First
National Health Council
1730 M St., NW, Suite 500
Washington, DC 20036-4505
Managed Care: An AARP Guide
American Association of Retired Persons
611 E St., N.W.
Washington, DC 20049
Choosing Quality: Finding the Health Plan That's
Right for You
National Committee for Quality Assurance
2000 L St., N.W., Suite 500
Washington, DC 20036
Consumers' Guide to Health Plans
Center for the Study of Services
733 15th St., N.W., Suite 820
Washington, DC 20005
Accreditation and Quality
Accreditation Association for Ambulatory Health
Care; 9933 Lawler Ave.;
Skokie, IL 60077-3708; (847) 676-9610
Accredits outpatient health
care settings such as ambulatory surgery centers,
radiation oncology centers, and student health
centers. Call for a list of accredited
Community Health Accreditation Program; 350
Hudson St.; New York, NY 10014; 800-669-1656, ext.
Accredits community, home
health, and hospice programs; public health
departments; and nursing centers. Call for a list
of accredited organizations.
Consumer Coalition for Quality Health Care;
1275 K Street, N.W.; Suite 602; Washington, DC
20005; (202) 789-3606
A national, nonprofit
organization of consumer groups advocating for
consumer protections and quality assurance
programs and policies. Call with general questions
about quality issues or for consumer materials on
managed care and activities at the State level.
Joint Commission on Accreditation of Healthcare
Organizations; One Renaissance Blvd.; Oakbrook
Terrace, IL 60181; (630) 792-5000
Evaluates and accredits nearly
20,000 health care organizations and programs
including almost 12,000 hospitals and home care
organizations, and more than 7,000 other health
care organizations that provide long term care,
behavioral health care, laboratory and ambulatory
care services. The Joint Commission also accredits
health plans, integrated delivery networks, and
other managed care entities. Visit Quality Check
on the Joint Commission's Web site (
for information on individual accredited
organizations or for general information about
assessing the quality of health care
National Committee for Quality Assurance;
2000 L St. N.W., Suite 500; Washington, DC 20036;
800-839-6487; Web Site:
Accredits HMOs and other
managed care organizations. Call for the NCQA
Accreditation Status List, Accreditation Summary
Report, publications list, or for general
information about quality.
Utilization Review Accreditation Commission;
1130 Connecticut Ave. N.W., Suite 450; Washington,
DC 20036; (202) 296-0120
Accredits PPOs and other
managed care networks. Call for a list of
This consumer's guide was developed by the Agency
for Health Care Policy and Research, U.S. Department
of Health and Human Services, Rockville, MD, in
cooperation with the Health Insurance Association of
America, Washington, DC.
Reviewed by Michael W. Smith, MD,
"Agency for Health Care Policy
and Research. ACER Publication: Choosing and
Using a Health Plan. Last updated March 1999.