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Types of Health Insurance
Different
lives often require different health insurance policies. Select a
category below to learn more about the different types of health
insurance.
Indemnity plans vs. managed care
Health insurance plans can be broadly divided into two
large categories: (1) indemnity plans (also referred to as
"reimbursement" plans), and (2) managed care plans.
Indemnity plans
An indemnity plan reimburses you for
your medical expenses regardless of who provides the service, although
in some cases your reimbursement amount may be limited. The coverage
offered by most traditional insurers is in the form of an indemnity
plan.
How is the benefit amount
calculated with an indemnity plan?
Different plans use
different methods for determining how much you will receive for your
medical expenses. Following are descriptions of the most common methods.
Reimbursement--actual
charges
Under this type of plan, the insurer will reimburse
you for the actual cost of specified procedures or services, regardless
of how much that cost might be.
Reimbursement--percentage of
actual charges
Under this type of plan, the insurer pays a
percentage of the actual charges for covered procedures and services,
regardless of how much those procedures and services cost. A common
reimbursement percentage is 80%. This has the same effect as a 20%
co-payment.
Indemnity
Under this type of plan, the
insurer pays a specified amount per day for a specified maximum number
of days. Although your reimbursement amount does not depend on the
actual cost of your care, your reimbursement will never exceed your
expenses.
Managed care plans
There
are three basic types of managed care plans: (1) Health Maintenance
Organizations (HMOs), (2) Preferred Provider Organizations (PPOs), and
(3) Point of Service (POS) plans. Although there are important
differences between the different types of managed care plans, there are
similarities as well. All managed care plans involve an arrangement
between the insurer and a selected network of health care providers
(doctors, hospitals, etc.). All offer policyholders significant
financial incentives to use the providers in that network. There are
usually specific standards for selecting providers and formal steps to
ensure that quality care is delivered.
Health maintenance
organizations (HMOs)
HMOs provide medical treatment on a
prepaid basis, which means that HMO members pay a fixed monthly fee,
regardless of how much medical care is needed in a given month. In
return for this fee, most HMOs provide a wide variety of medical
services, from office visits to hospitalization and surgery. With a few
exceptions, HMO members must receive their medical treatment from
physicians and facilities within the HMO network.
Preferred
provider organizations (PPOs)
A PPO is made up of doctors
and/or hospitals that provide medical service only to a specific group
or association. Rather than prepaying for medical care, PPO members pay
for services as they are rendered. The PPO sponsor (usually an employer
or insurance company) generally reimburses the member for the cost of
the treatment, less any co-payment. In some cases, the physician may
submit the bill directly to the insurance company for payment. The
insurer then pays the covered amount directly to the healthcare
provider, and the member pays his or her co-payment amount. The price
for each type of service is negotiated in advance by the healthcare
providers and the PPO sponsor(s).
Point of service (POS)
plans
A point of service plan is a type of managed healthcare
system where you pay no deductible and usually only a minimal co-payment
when you use a healthcare provider within your network. You also must
choose a primary care physician who is responsible for all referrals
within the POS network. If you choose to go outside of the network for
healthcare, you will likely be subject to a deductible (around $300 for
an individual or $600 for a family), and your co-payment will be a
substantial percentage of the physician's charges (usually 30-40%).
So
which is better?
In general, managed care plans are better
suited for the average individual because they end up being more cost
effective in the long run. In contrast, indemnity/reimbursement plans
usually hit you with more out-of-pocket charges (in the form of
deductibles and co-payments) and often place caps on the amount of
benefits you can receive over your lifetime. Indemnity plans do give you
more freedom, however, than managed care plans in terms of using the
healthcare provider of your choosing. So, as with anything else, the
choice between managed care and indemnity plans ultimately depends on
your personal circumstances and preferences. If your goal is to minimize
costs, you're probably better off with a managed care plan. On the
other hand, if your goal is maximum flexibility and cost is not a major
factor, you should consider an indemnity/reimbursement plan.
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Group health insurance
With group health insurance, a single policy covers the medical
expenses of many different people, instead of covering just one person.
Unlike individual insurance, where each person's risk potential is
evaluated to determine insurability, all eligible people can be covered
by a group policy, regardless of age or physical condition. The premium
for group insurance is calculated based on the characteristics of the
group as a whole, such as average age and degree of occupational hazard.
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Individual health insurance
Individual health insurance covers the medical expenses of only one
person or family. Unlike group insurance, you purchase individual
insurance directly from an insurance company. When you apply for
individual insurance, you are evaluated in terms of how much risk you
present. This is generally done through a series of medical questions
and/or a physical exam. Your risk potential determines whether you
qualify, and how much your insurance will cost.
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Dental insurance
Dental insurance
is insurance that provides coverage for services relating to the care
and treatment of your teeth and gums. Typically, it provides coverage
for some or all of the following dental services: - Diagnostic
procedures
- Semiannual checkups (including cleanings) and
periodic x-rays
- Procedures that restore teeth
- Oral
and maxillofacial surgery (teeth extraction and oral surgery)
- Periodontics
(treatment of bone and gum diseases)
- Prosthodontics
(fillings, dentures, bridges, and crowns)
- Orthodontics
(repositioning of the teeth)
- Oral surgery
- Root
canal therapy
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Medicare
Medicare is a federal program that provides health insurance to retired
individuals, regardless of their medical condition. Below are some basic
facts about Medicare you should know.
What does Medicare
cover?
Medicare coverage consists of two parts--Medicare Part A
(hospital insurance) and Medicare Part B (medical insurance). A third
part, Medicare Part C (Medicare+Choice) is a program that allows you to
choose from several types of health-care plans.
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Medicaid
What is Medicaid?
Medicaid is a health insurance program for people with low income. It
was created in 1965 as a joint federal-state program to provide medical
assistance to aged, disabled, or blind individuals (or to needy,
dependent children) who could not otherwise afford the necessary medical
care.
Who administers Medicaid?
Each state
administers its own Medicaid programs based on broad federal guidelines
and regulations. Within these guidelines, each state (1) determines its
own eligibility requirements, (2) prescribes the amount, duration, and
types of services, (3) chooses the rate of reimbursement for services,
and (4) oversees its own program.
How do you qualify for
Medicaid?
Approximately 39 million people receive Medicaid
benefits. To qualify for Medicaid, you must meet two basic eligibility
requirements. First, you must be considered categorically needy because
you are blind, disabled, or elderly. Second, you must be financially
needy. This means that your income and your assets must fall under a
certain limit set by the state in which you live.
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