The Alphabet Soup of Health Insurance

There was a time when there were very few decisions that had to be made when it came to purchasing health insurance. Now, whether you are purchasing health insurance on your own, or if you are employed by a company that offers health insurance you are faced with many options. Your employer may give you the option to change from an HMO, to a Point of Service (POS) plan to a PPO once a year. If you are purchasing insurance on an individual basis, you are looking at HMO’ s, PPO’s, or traditional insurance. It is more like looking into a bowl of alphabet soup and trying to decide which combination of letters is best for you. When choosing health insurance, it is best if you understand the various options and make an informed decision, rather than merely looking at what each type plan will cost you. Granted, cost is a very important factor and that is why you must analyze your options to choose the plan that best meets both your medical needs and your budget. This article will explain the various types of health insurance plans from which you may be asked to make a choice.

Fee for Service (or indemnity)

It is exceedingly difficult to purchase what was known as traditional, fee-for-service health insurance. Those days are pretty much gone. The doctor provided a service and was paid for it; insurance reimbursed the doctor or the patient according to “reasonable and customary fee schedules” and the patient was responsible for paying the doctor whatever amount was not covered by insurance.

Today, even health insurance that individuals purchase themselves is connected to networks for reimbursement purposes. The plans may be known as comprehensive major medical policies or comprehensive fee-for-service health insurance. However, reimbursement is based on contractual agreements between the provider and the insurer.

When a provider (hospital, doctor, therapist, etc) is part of a network, it means that they have signed a contract agreeing to accept a lesser fee for services that they provide to any member (patient) participating in the network plan.

You may have a very high deductible that must first be met. For example: You have a policy with a $1500 deductible and then it pays 70%. The doctor charges you $125 and he is in the network so the claim is submitted to the insurance company from your physician’s office. The “allowable” charge is only $75.00 (the amount the doctor agreed to when he signed the contract with the insurer). $75.00 will go towards your deductible if you have not yet met it and you will be responsible for paying the doctor $75.00. The remaining $50.00 must be written off—the doctor cannot charge that amount to you because he is in the network. However, if you went to a doctor out of the network, you would be responsible for the entire $125.

HMO --Health Maintenance Organization

An HMO is a highly structured managed care plan. Members of an HMO receive health services only from the health professionals and hospitals that are under contract with the HMO. The HMO may employ the healthcare providers or they may be under contract with the insurance carrier as a member of the carrier’s network. With an HMO, you must choose a primary care physician (either a family or general practitioner or an internist) from the directory of HMO providers. Many HMO’s will also allow a female to choose a gynecologist as well. Your primary care physician (PCP) will coordinate all of your medical care and can only refer you to specialists that are in the network of providers. (Some states have mandated that HMOs must allow you to go out of network if the specialist you need is not part of the HMO network of providers).

With an HMO, you have very little, if any, freedom of choice. The advantage of an HMO is that you do not have to submit claim forms and wait for reimbursement. You usually are required to make a co-payment at the time the service is rendered, ranging from $10 to $30 per visit. HMOs provide some routine services each year such as a routine, annual physical whereas many other health insurance plans will only pay for a routine physical if there is a diagnosis. The major disadvantage to an HMO is that you have limited choices for receiving health care. It used to be that HMO’s were less expensive than other types of coverage, but that is no longer the case. You must study benefits and premiums to determine the best plan for you.

POS- Point of Service HMO

A POS plan is an HMO with the opportunity to go out of network. You still choose a primary care physician from the directory of physicians in the network and this provider will coordinate all of your medical care. You simply make your co-payment at the time of this visit. However, should you desire to see a provider who is not in the network, you may do so. The POS plan then works like a traditional, indemnity plan and you reach a deductible first and then the plan pays a certain percentage of the allowable charge (70 or 80 percent is the most common).

PPO—Preferred Provider Organization

A PPO is a network of providers and facilities that have contracted with an insurance company to provide service to its members at discounted prices. You will be given a directory of providers and are free to choose anyone in the directory, including specialists. This is known as an “in-network” benefit. Most PPO’s have a small co-payment ranging from $10 to $30 per visit, depending on the plan. There is no primary care physician; you can choose anyone in the directory. Should you choose a provider who is not in the network, you will have a deductible that must first be met before the plan will pay for the services. After the deductible, reimbursement will be at a fixed percentage ranging from 60% to 80% depending on the plan. A PPO is usually (but not always) a bit more expensive that an HMO or POS but the big advantage is freedom of choice and “no permission needed.”

Irene Card & Betsy Chandler share the responsibilities of running Medical Insurance Claims, Inc. a health insurance services company. If you have questions relative to this column or other related topics, we invite you to call (973) 492-2828, browse our past columns on our web site at www.micinsurance.com.

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