Choosing a Plan
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.
Plans change from year to year, so you should carefully consider each plan and weigh each option’s benefits and costs against your needs. (See “Common Consumer Questions”) 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 questions.
With any plan, 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.
Health insurance plans usually are described as either indemnity (fee-for-service) or managed care. Indemnity and managed care plans differ in their basic approach. 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 indemnity-type plan.
Over time, the distinctions between these kinds of plans have blurred as health plans compete for your business. Some indemnity plans offer managed care-type options, and many 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 three basic types of managed care plans: PPOs, HMOs, and POS plans. Newer coverage options include various consumer directed health plans as well as health savings accounts (HSAs) and high deductible health plans (HDHPs).
With an indemnity plan (sometimes called fee-for-service), you can use any medical provider (such as 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 starts paying.
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 cost 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 the 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 $15 for a doctor visit or $20 for a prescription). If you choose to go outside the network, you will have to meet the deductible and pay coinsurance (generally a percentage of the charges for the service provided). In addition, you may have to pay the difference between what the provider charges and what the plan will pay.
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. HMOs generally require you to pay a co-payment when you visit doctors.
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 coverage.
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.
Health Savings Accounts (HSAs)
A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs can be set up by consumers or by employers and give individuals the opportunity to use tax-free funds to pay medical bills and to save for future health care expenses. HSAs are established in combination with insurance coverage under a qualifying high deductible health plan.
You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.
High Deductible Health Plan (HDHP)
You must have an HDHP if you want to open an HSA. An HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses your plan does not cover.