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Health Insurance Choices

published July 02, 2007

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The most common types of health insurance plans available are:
  • Fee-for-service plans
  • Health maintenance organization plans (HMOs)
  • Preferred provider organization plans (PPOs)
Fee-for-Service Plans

Insurance companies pay the fees for the medical services provided to the insured or beneficiary under this traditional type of health insurance plan. Some of the characteristics of a typical fee-for-service plan are as follows:
  • The insured can choose from a wide range of doctors and hospitals.
  • The insured pays a periodical fee to the insurer.
  • A fixed amount is paid by the insured towards medical expenses every year. This amount is called the deductible.
  • The insured and insurer may also share the cost of medical bills. The portion of the medical bills paid by the insured is called coinsurance. This amount is capped, and the insurance company pays the amount beyond the cap.
  • When a claim arises, the insured has to fill out forms and submit the receipts for the costs incurred to receive payment for the claim.
  • There are two categories of fee-for-service coverage: basic and major medical. Basic protection covers hospital expenses, including some services, supplies, surgeries, and doctor visits. Major medical insurance provides what basic coverage does not. Major medical insurance covers the costs of long illnesses or injuries. The option of enrolling in a "comprehensive plan" that combines basic and major medical insurance coverage is also available.
Fee-for-service plans are expensive for both the consumer and the insurance company. The costs of medical treatment are continually increasing. To control the costs of medical treatment, the concept of managed care was introduced by the health insurance industry. Managed care is also preferred over traditional health insurance by consumers, and its popularity has grown in the last decade.

Managed care organizations can be broadly classified as health maintenance organizations (HMOs) or preferred provider organizations (PPOs).

Health Maintenance Organizations (HMOs)

Health maintenance organizations offer healthcare services and prepaid health plans. The beneficiary pays a monthly premium, and the HMO provides comprehensive care for the beneficiary and his or her family. Benefits include hospital expenses, surgeries, pathology tests, doctors' visits, emergency care, and therapy.

Some of the characteristics of HMOs are as follows:
  • HMOs provide services directly or through their networks of contracted doctors and healthcare professionals. Doctor choice is limited under the HMO arrangement, but exceptions are made during emergencies or when medically necessary.
  • The beneficiary has to select a primary care physician. All medical needs are dealt with through this physician with the exception of medical emergencies. The primary care physician authorizes all referrals to other specialists and doctors.
  • The beneficiary may have to make a small co-payment for each office visit. The cost to the beneficiary will likely be lower than it would be with fee-for-service health insurance.
  • HMOs typically provide preventive care such as office visits, immunizations, mammograms, and well-baby checkups.
  • The services covered by HMOs vary.
  • HMOs do not require beneficiaries to submit claim forms or bills.
Preferred Provider Organizations (PPOs)

Preferred provider organizations are also managed care organizations. They combine the benefits of traditional fee-for-service providers and HMOs.

Most of the characteristics of PPO insurance plans are similar to those of HMO insurance plans. One major difference is that while with HMO plans, the services of doctors who are not part of the HMO or its network cannot be sought, this is possible with a PPO plan if the insured is willing to pay a larger portion of the bill. Some people prefer this option because they do not have to change their doctors when they join PPOs but can continue to consult the doctors of their choice.

While looking for a suitable health insurance plan, one has to decide what is more important—the doctor/provider of health services or other aspects of the health insurance plan such as cost, services covered, etc.