Of Health Insurance Plans
Provider Organizations (PPOs)
Provider Organizations (EPO)
Maintenance Organizations (HMOs)
Traditional health insurance
Up until about 30 years
ago, most people had traditional indemnity coverage. These days,
it's often known as "fee-for-service." Indemnity plans are
a bit like auto insurance: you pay a certain amount of your medical
expenses up front -- in the form of a deductible -- and afterward
the insurance company pays the majority of the bill.
Advances in modern medicine
increased the cost of providing health care and made it possible for
people to live longer. Those advances caused many insurance
companies to look for ways to reduce their costs of doing business,
giving managed care the boost it enjoys today.
For years, indemnity or fee-for-service coverage was the
norm. Under this type of health coverage, you have complete autonomy
when it comes to choosing doctors, hospitals and other health care
providers. You can refer yourself to any specialist without getting
permission, and the insurance company doesn't get to decide whether
the visit was necessary.
You don't, however, have complete
autonomy. Most fee-for-service medicine is managed to a certain
extent. For instance, if you're not already incapacitated, you may
need to get clearance for a visit to the emergency room.
On the down side, fee-for-service
plans usually involve more out-of-pocket expenses. Often there is a
deductible, usually of about $200, before the insurance company
starts paying. Once you've paid the deductible, the insurer will
kick in about 80 percent of any doctor bills. You may have to pay up
front and then submit the bill for reimbursement, or your provider
may bill your insurer directly.
Under fee-for-service plans,
insurers will usually only pay for "reasonable and
customary" medical expenses, taking into account what other
practitioners in the area charge for similar services. If your
doctor happens to charge more than what the insurance company
considers "reasonable and customary," you'll probably have
to make up the difference yourself.
Traditionally, preventive care
services like annual check-ups and pelvic exams haven't been covered
under fee-for-service plans. But as the evidence mounts that
preventive care can prevent more costly illnesses down the road,
some insurers are including them.
Fee-for-service plans often include
a ceiling for out-of-pocket expenses, after which the insurance
company will pay 100 percent of any costs. Needless to say, the
ceiling is usually pretty high.
In a nutshell, fee-for-service
coverage offers flexibility in exchange for higher out-of-pocket
expenses, more paperwork and higher premiums.
Managed care has been around in one form or another since the
1930s, but it really took off in the last 10 years. As it grew, it
evolved, leaving us with three basic types of managed care plans.
Today, the majority of people with private health insurance have
some type of managed care.
Although there are important
differences among the different types of managed care plans, there
are some similarities. All managed care plans involve an arrangement
between the insurer and a selected network of health care providers,
and they offer policyholders significant financial incentives to use
the providers in that network. There are usually explicit standards
for selecting providers and a formal procedure to assure quality
One step over the managed care border is the Preferred
Provider Organization. PPOs have made arrangements for lower fees
with a network of health care providers. PPOs give their
policyholders a financial incentive to stay within that network.
For example, a visit to an
in-network doctor might mean you'd have a $10 co-pay. If you wanted
see an out-of-network doctor, you'd have to pay the entire bill up
front and then submit the bill to your insurance company for an 80
percent reimbursement. In addition, you might have to pay a
deductible if you choose to go outside the network, or pay the
difference between what the in-network and out-of-network doctors
With a PPO, you can refer yourself
to a specialist without getting approval and, as long as it's an
in-network provider, enjoy the same co-pay. Staying within the
network means less money coming out of your pocket and less
paperwork. Preventive care services may not be covered under a PPO.
Exclusive Provider Organizations
are PPOs that look like HMOs. EPOs raise the financial stakes for
staying in the network. If you choose a provider outside the
network, you're responsible for the entire cost of the visit.
Point-of-service plans are similar to PPOs, but they
introduce the gatekeeper, or Primary Care Physician. You'll need to
choose your PCP from among the plan's network of doctors.
As with the PPO, you can choose to
go out of network and still get some kind of coverage. In order to
get a referral to a specialist, though, you usually must go through
your PCP. You can still choose to refer yourself, but it'll mean
more hassles and more money coming out of your pocket.
If your PCP refers you to a doctor
who is out of the network, the plan should pick up most of the cost.
But if you refer yourself out, then you'll probably have to deal
with more paperwork and a smaller reimbursement. You may also have
to pay a deductible if you go outside the network.
POS plans may also cover more
preventive care services, and may even offer health improvement
programs like workshops on nutrition and smoking cessation, and
discounts at health clubs.
Most of the time, when you talk about HMOs, you're really
talking about closed-panel HMOs -- the least expensive, but least
flexible type of health plan. They also tend to be geared more
toward members of group plans than individuals.
In exchange for a low co-payment
(or sometimes no co-pay at all), low premiums and minimal paperwork,
an HMO requires that you only see its doctors, and that you get a
referral from your primary care physician before you see a
specialist. If you can still pick up the phone, you'll probably need
to get clearance before you can visit the emergency room.
An HMO may have central medical
offices or clinics (such as those used by Kaiser Permanente), or it
may consist of a network of individual practices. In general, you
must see HMO-approved physicians or pay the entire cost of the visit
yourself. HMOs have the best reputation for covering preventive care
services and health improvement programs.