Understanding Your Health Insurance Options

Medical care can be expensive, and it is hard to predict when a big bill might land in your mailbox. That is the basic reason people carry health insurance. It spreads the financial risk so that a serious illness or accident does not have to mean a financial crisis on top of a medical one. Over the years, health coverage in this country has shifted away from simple fee-for-service arrangements toward a variety of managed care options. Knowing the difference between these plan types can help you make sense of open enrollment materials and conversations with your agent.

Why Health Insurance Matters

Nobody can predict their medical needs with certainty. A healthy year might bring very few expenses, while an unexpected diagnosis or injury could bring significant costs. Health insurance works by shifting much of that financial uncertainty to a third party, typically an insurance company or an employer-sponsored plan, so you are not left covering the full cost on your own.

Because the rules, provider networks and cost-sharing amounts vary widely from plan to plan, it helps to understand the basic structures before comparing options.

How Coverage Has Changed

Decades ago, most people with coverage had what is called an indemnity or fee-for-service plan. Under this approach, you could visit almost any doctor or hospital, and the insurer and patient would each pay an agreed share of the bill.

Today, most insured Americans are enrolled in some form of managed care, which organizes both the delivery and payment of services. Common examples include health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans. Each works a little differently, and the right fit depends on your household's needs and preferences.

Fee-for-Service (Indemnity) Plans

This traditional style of coverage generally offers the widest choice of doctors and hospitals, since you are not restricted to a network. In exchange, you typically pay a monthly premium, an annual deductible before coverage kicks in, and a coinsurance share of covered bills after that.

Many of these plans include an annual out-of-pocket cap, after which the insurer covers the remaining allowed costs for the year. Deductible amounts, coinsurance percentages and caps vary by policy and change over time, so always confirm current figures with your plan documents rather than relying on older examples.

You may also encounter the idea of a reasonable and customary fee. If a provider charges more than what the insurer considers typical for the area, you could be responsible for the difference. Asking providers in advance whether they accept your insurer's payment as payment in full can help avoid surprises.

Indemnity plans often separate basic coverage (hospital room, supplies, some surgery and doctor visits) from major medical coverage (costs tied to longer or more serious illnesses and injuries). Some policies combine both into a single comprehensive plan, so it is worth checking exactly what your policy includes.

• What is the monthly premium for individual versus family coverage?
• What services are covered, and are there limits on days or dollar amounts?
• What is the deductible, and does a higher deductible lower the premium?
• What is the coinsurance rate for covered services?
• Is there an annual or lifetime maximum the insurer will pay?

Health Maintenance Organizations (HMOs)

HMOs are prepaid plans. You pay a monthly premium, and in return the HMO arranges comprehensive care, often through its own staff or through a network of contracted providers. Choices of doctors and hospitals are generally limited to the network, aside from emergencies.

Visits often involve a modest copayment rather than a deductible and coinsurance, which can make costs more predictable. HMOs typically emphasize preventive care, such as checkups, immunizations and screenings, since keeping members healthy benefits the plan as well as the patient.

Most HMOs ask you to select a primary care doctor who coordinates your care and provides referrals to specialists. This arrangement limits choice somewhat, but it can also simplify how care is organized.

• How many doctors and specialists are available, and are they accepting new patients?
• How easy is it to get an appointment, and how are emergencies handled?
• What preventive and specialty services are included, and are there limits?
• Where are the network facilities located relative to home and work?
• What will premiums and copayments cost overall?

Preferred Provider Organizations (PPOs)

A PPO blends elements of indemnity coverage and HMO structure. You still choose from a network of preferred providers for the most complete coverage, but you also have the option to see out-of-network providers, usually at a higher out-of-pocket cost and with claim forms to file.

In-network visits often involve a modest copayment, while out-of-network care may involve a deductible and coinsurance. As with HMOs, a primary care doctor often coordinates your care, and preventive services are commonly included.

• Which doctors and hospitals participate in the network, and where are they located?
• How are referrals to specialists handled?
• What preventive and specialty services are covered?
• What is the cost difference between in-network and out-of-network care?
• Is there an out-of-pocket maximum for the year?

Point-of-Service (POS) Plans

A POS plan gives members a choice at the time care is needed. You can use your primary care doctor and receive HMO-style coverage, visit an in-network PPO-style provider, or go outside the network entirely and accept reduced reimbursement. This flexibility can suit families who want some network savings but also want the option to go outside it when needed.

Because cost-sharing rules differ depending on which path you choose, it helps to understand how your particular plan treats each option before you need care.

This article is general information, not legal, tax or financial advice. Coverage depends on the terms, conditions and exclusions of each policy. Talk with a licensed agent about your situation.