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| Type of Insurance Indemnity vs. Managed Care Health insurance plans can be broadly divided into two large categories: (1) indemnity plans (also referred to as "reimbursement" plans), and (2) managed care plans. Indemnity plans An indemnity plan reimburses you for your medical expenses regardless of who provides the service, although in some cases your reimbursement amount may be limited. The coverage offered by most traditional insurers is in the form of an indemnity plan. How is the benefit amount calculated with an indemnity plan? Different plans use different methods for determining how much you will receive for your medical expenses. Following are descriptions of the most common methods. Reimbursement--actual charges Under this type of plan, the insurer will reimburse you for the actual cost of specified procedures or services, regardless of how much that cost might be. Reimbursement--percentage of actual charges Under this type of plan, the insurer pays a percentage of the actual charges for covered procedures and services, regardless of how much those procedures and services cost. A common reimbursement percentage is 80%. This has the same effect as a 20% co-payment. Indemnity Under this type of plan, the insurer pays a specified amount per day for a specified maximum number of days. Although your reimbursement amount does not depend on the actual cost of your care, your reimbursement will never exceed your expenses. Managed care plans There are three basic types of managed care plans: (1) Health Maintenance Organizations (HMOs), (2) Preferred Provider Organizations (PPOs), and (3) Point of Service (POS) plans. Although there are important differences between the different types of managed care plans, there are similarities as well. All managed care plans involve an arrangement between the insurer and a selected network of health care providers (doctors, hospitals, etc.). All offer policyholders significant financial incentives to use the providers in that network. There are usually specific standards for selecting providers and formal steps to ensure that quality care is delivered. Health maintenance organizations (HMOs) HMOs provide medical treatment on a prepaid basis, which means that HMO members pay a fixed monthly fee, regardless of how much medical care is needed in a given month. In return for this fee, most HMOs provide a wide variety of medical services, from office visits to hospitalization and surgery. With a few exceptions, HMO members must receive their medical treatment from physicians and facilities within the HMO network. Preferred provider organizations (PPOs) A PPO is made up of doctors and/or hospitals that provide medical service only to a specific group or association. Rather than prepaying for medical care, PPO members pay for services as they are rendered. The PPO sponsor (usually an employer or insurance company) generally reimburses the member for the cost of the treatment, less any co-payment. In some cases, the physician may submit the bill directly to the insurance company for payment. The insurer then pays the covered amount directly to the healthcare provider, and the member pays his or her co-payment amount. The price for each type of service is negotiated in advance by the healthcare providers and the PPO sponsor(s). Point of service (POS) plans A point of service plan is a type of managed healthcare system where you pay no deductible and usually only a minimal co-payment when you use a healthcare provider within your network. You also must choose a primary care physician who is responsible for all referrals within the POS network. If you choose to go outside of the network for healthcare, you will likely be subject to a deductible (around $300 for an individual or $600 for a family), and your co-payment will be a substantial percentage of the physician's charges (usually 30-40%). So which is better? In general, managed care plans are better suited for the average individual because they end up being more cost effective in the long run. In contrast, indemnity/reimbursement plans usually hit you with more out-of-pocket charges (in the form of deductibles and co-payments) and often place caps on the amount of benefits you can receive over your lifetime. Indemnity plans do give you more freedom, however, than managed care plans in terms of using the healthcare provider of your choosing. So, as with anything else, the choice between managed care and indemnity plans ultimately depends on your personal circumstances and preferences. If your goal is to minimize costs, you're probably better off with a managed care plan. On the other hand, if your goal is maximum flexibility and cost is not a major factor, you should consider an indemnity/reimbursement plan. Group Health Insurance With group health insurance, a single policy covers the medical expenses of many different people, instead of covering just one person. Unlike individual insurance, where each person's risk potential is evaluated to determine insurability, all eligible people can be covered by a group policy, regardless of age or physical condition. The premium for group insurance is calculated based on the characteristics of the group as a whole, such as average age and degree of occupational hazard. How do you get group health insurance? Find out whether you are eligible Many employers offer group health insurance as part of their employee benefits package. Other groups that may offer insurance coverage include churches, clubs, trade associations, chambers of commerce, and special-interest groups. Apply for coverage Although your individual health is generally not evaluated when you apply for group health insurance, you must apply during the specified eligibility period. For employer-sponsored health insurance, this is often the first 30 days of your employment, or the first 30 days following your initial probationary period. For associational insurance, this may be the first 30 days of your membership in the group. If you fail to enroll during this period, the insurance company has the right to treat you as though you were applying for individual insurance. This means you will probably have to answer extensive health questions, and go through a physical examination. The insurance company can then decide whether or not to insure you. The purpose of the eligibility period is to reduce insurance costs by preventing people from waiting until after they discover a health problem to sign up for coverage. Both employers and associations may also have an open enrollment period each year, during which you may sign up for coverage, modify your existing coverage, or add dependents to your coverage. What are the benefits of group coverage? You don't need a physical exam Under a group health insurance arrangement, the insurance company agrees to insure all members of the group, regardless of current physical condition or health history. The only condition is that the group members must apply for insurance within the specified eligibility period. Clearly, this is better for those with chronic health conditions, who might be unable to get individual insurance. It's cheaper than individual insurance Because only one policy is issued for the entire group, the initial cost of establishing group coverage is lower than the cost of issuing a separate policy to each person. Also, group insurance is somewhat less risky for insurers than individual insurance, since the risk is spread out among a larger number of people. Within a fairly large group, it is almost certain that the good insurance risks will equal or exceed the bad insurance risks. Since group insurance costs less for the insurance companies to establish and administer, it generally costs less to purchase. You might get a break on premiums In many cases, your employer or association will pick up some or all of the group insurance premium. This can make group insurance even more affordable. What are the drawbacks to group coverage? You can't customize your policy. In a group insurance situation, the provisions of the policy are negotiated between the insurer and master policyowner (usually an employer or association). You may not have the freedom to have provisions included or excluded, and your deductible amount and co-payment percentage are determined in advance. In some situations, however, you may be able to choose between two or more insurance plans. Individual Insurance Individual health insurance covers the medical expenses of only one person or family. Unlike group insurance, you purchase individual insurance directly from an insurance company. When you apply for individual insurance, you are evaluated in terms of how much risk you present. This is generally done through a series of medical questions and/or a physical exam. Your risk potential determines whether you qualify, and how much your insurance will cost. What will the insurance company want to know? Before issuing an individual insurance policy, the insurer will want to know everything about your personal health history. It is unwise to try to hide a pre-existing condition from your insurer, since many insurers use information from the Medical Information Bureau (MIB) to determine whether an applicant is insurable. If the insurer doesn't want to cover a particular health condition, you may still be able to get a policy with an exclusion rider. What are the benefits of individual coverage? If available, group insurance is generally a better option, since it is usually more comprehensive and less expensive than individual insurance. However, individual coverage is infinitely better than being uninsured in the event of illness or injury. Although you may think you can do without health insurance, you are taking a major risk if you choose not to get coverage. An unexpected illness or serious injury can put you and your family in financial peril. In a group insurance situation, the provisions of the policy are negotiated between the insurer and master policyowner (usually an employer or association). With individual insurance, you are directly in control of your policy. You can negotiate to have certain provisions included or excluded, and you can often choose your deductible amount and co-payment percentage. Keep in mind, however, that these things will affect your premiums. |
Type of Insurance