Health Insurance Overview
While most people understand the importance of having health insurance, many don't know much about it. Here is some basic information about health insurance that will help you understand this essential product.
Types of Health Insurance
There are two primary types of health insurance:
- Fee-for-Service--Patients are cared for by the doctor of their choice. The patient or medical provider makes the claim and pays the medical professional a fee for each service provided.
- Managed Care--The majority of Americans have a managed-care plan. There are different types of managed-care plans. These plans provide comprehensive services and offer financial incentives to patients who use the providers in the plan, also known as a "network." The most common types of managed-care plans are health maintenance organizations HMOs) and preferred provider organizations PPOs).
HMOMembers of an HMO must select a primary-care physician. When seeking treatment, members must obtain a referral from their primary-care physician to get services from another physician in the network. Because the cost is spread out among a limited number of members, HMOs can be less expensive than PPOs. However, costs of services performed by a doctor outside of an HMO network may be much higher, resulting in a higher out-of-pocket expense for the patient.
PPOSimilar to an HMO in structure, members of a PPO have greater flexibility when choosing services provided by physicians outside the plan's network. PPOs may include additional benefits such as prescription drug plans. The premium for a PPO tends to be greater than an HMO.
There are advantages and disadvantages to each of these health insurance plans. Choosing between the two should be made only after a careful review of each plan's benefits--e.g., size and accessibility of network--and limits, including out-of-pocket expenses.
Individual vs. Group PlansMany Americans join a group health insurance plan offered through their employer or another organization. Group plans tend to be less expensive and offer broader coverage than individual plans.
Those without access to group health insurance or who choose to forego group coverage can purchase an individual health insurance plan for themselves and family members. While individual policies can help control the cost of health care, they are usually more expensive and are more restrictive than group plans.
What You Pay For
Health insurance plans typically include a deductible or co-payment for services. This is the amount you will pay out-of-pocket for services before the insurance coverage pays. Deductibles may differ depending on the service performed. For some services, the policy may include coinsurance--this is the percentage of the cost you will pay out of pocket versus the percentage paid by the insurance company. Before choosing a plan, carefully review the limits for different types of services and make sure you understand any out-of-pocket expenses. Choosing higher deductibles, co-payments and coinsurance percentages means more out-of-pocket cost to you; however, this will also reduce your overall premium.
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