Health Plans 101

Do you need individual health insurance to avoid penalties in 2015? You can make a better buying decision if you understand the types of plans available.

When talking about health plans, the two major categories are fee-for-service and managed care. The main differences largely involve choice of providers, out-of-pocket costs for covered services and how bills are paid.

Fee-for-Service Plans

The “traditional” health insurance plan, usually allows policyholders to use any licensed physician, hospital or clinic. Your plan will provide full benefits, after you meet the annual deductible.

You must pay the deductible amount out of pocket for services covered by your plan each year. After you meet the deductible amount, your plan will begin paying benefits.

If you have family coverage, your plan will probably have both an individual deductible and a family deductible. The individual deductible will apply to each person covered by your plan. Once medical spending for that person reaches the deductible amount, your plan will begin paying its share of that person’s covered medical costs.

The family deductible applies to medical spending for your covered family members. Once the total medical spending reaches the family deductible amount, your policy will begin paying claims for all covered family members, whether they have reached their individual deductible or not. Bottom line: Your policy will start paying its share for whichever deductible you meet first: individual or the entire family.

After you meet the deductible, fee-for-service plans pay a percentage of what they consider the “usual and customary” (U&C) charge for covered services. You’ll pay the balance, known as coinsurance. Coinsurance percentages vary, but many policies pay 80 percent of covered charges. The insured pays the remaining 20 percent as coinsurance. If your provider charges more than the usual and customary rates, you’ll pay both the coinsurance and the difference.

Most fee-for-service plans include an annual maximum, or monetary cap. The insured reaches the cap when the out-of-pocket expenses (for deductibles and coinsurance) total a certain amount in any one year or specified period. The insurance company pays 100 percent of covered benefits after you reach the annual cap. The cap does not include the amount of the premium.

Medicare Parts A and B are examples of fee-for-service plans. Since managed care plans came onto the market in the 1980s, fee-for-service plans in the private insurance market have become less common.

Advantages: You can choose any provider you want. Plans also do not require you to obtain pre-authorization for covered services.

Disadvantages: Fee-for-service plans lack the cost control features of other types of health insurance, so they usually cost more. Since plans do not have a network of member physicians and hospitals, you might have to submit your own claim form, rather than your healthcare provider.

Managed Care Plans

Managed care plans contract with certain doctors, hospitals and health care providers to offer a range of services to plan members at reduced cost. In general, managed care plans involve less paperwork and lower out-of-pocket costs. There are a number of managed care options available:

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. Some HMOs contract with physician groups or individual doctors with private offices. These are called individual practice associations (IPAs) or networks. Staff or group HMOs like Kaiser Permanente, the nation’s largest, employ all their own providers.

Most HMO plans have an annual deductible. The deductible often applies only to outpatient surgery or hospital stays—these plans will cover preventive care and routine office visits in full, with no deductible. Most plans also require a per-visit co-payment. Virtually all HMOs only cover care provided only by HMO providers, with exceptions for emergencies or when otherwise medically necessary.

Many HMOs offer an indemnity-type option known as a point of service (POS) plan. In a POS plan, members can refer themselves outside the plan and still get some coverage. If you use a provider outside the network for a covered service, a fairly high coinsurance will apply. You might have to pay 50 percent of covered charges, after the copayment. However, if you need care outside the HMO’s network and your primary care physician refers you, your plan will pay all or most of the bill.

Advantages: Many HMOs offer one-stop shopping for the medical needs of most families. And you generally have no paperwork—simply show your membership card and pay your per-visit copayment when you visit your doctor.

HMOs often do a better job of encouraging prevention and wellness than other plan types. Since they agree to cover most of your healthcare needs for one monthly premium, they have incentive to keep members healthy. The closed network of an HMO can help ensure better coordination of care. This can help patients with multiple conditions or prescriptions avoid adverse reactions.

Disadvantages: You must live within the HMOs service area to be covered. If you move, you may have to change plans. You must use providers affiliated with the HMO for all of your healthcare needs, except in case of emergency or certain other circumstances, such as needing specialized services not available in your area. To see a specialist, you must get a referral from your primary care physician.

Preferred provider organization (PPO)

PPOs are the most common type of health plan. Like all managed care plans, a PPO has agreements with doctors, hospitals and other care providers to accept lower fees for their services. If you use a network physician or hospital, the plan will pay a higher percentage of your covered costs.

With a PPO, you will have an annual deductible. You’ll also pay a copayment each time you use a covered health service. Copayments typically cost about $25 per office visit.

After your visit, your provider will bill your insurance company. After you’ve met the annual deductible, the insurer will pay a percentage of your covered charges, typically 80 percent. You’ll pay the remaining coinsurance percentage. Insurers design plans with coinsurance to give plan members some “skin in the game.” This encourages plan members to make wiser healthcare spending decisions.

PPOs have an annual maximum. Once your out-of-pocket spending (deductibles, copayments and coinsurance) reach this amount, your policy will pay 100 percent of covered costs. You will still pay the copayment every time you make an office visit, however.

Patients can go outside the PPO’s network for care, but your policy will pay a lower percentage of covered costs. It might pay 50 percent of out-of-network charges, leaving you responsible for the remaining 50 percent, along with any deductibles and copayments. Plans typically make exceptions to the out-of-network rules for emergency care.

Advantages: PPOs offer members more flexibility than an HMO. You can use whatever licensed healthcare provider you choose; you will pay more to use an out-of-network provider.

Disadvantages: If you want to keep your doctors, check any plan’s network list before buying.

High-deductible health plans

High-deductible health plans (HDHPs) are just what they sound like: a plan with a high deductible. For people wanting low-cost coverage, a high-deductible health plan can be a wise choice. Plans are designed to provide coverage for catastrophic medical costs. Like most other plans, they won’t pay any of your medical care costs until you’ve met your deductible. However, newer plans (created after March 23, 2010) must meet the requirements of the Affordable Care Act. These plans must provide first-dollar (no deductible) coverage for certain preventive services not intended to treat an existing illness, injury or condition.

Advantages: HDHPs typically have lower premiums than other plan types. If you have a qualifying HDHP, you can also open a health savings account (HSA). You can save pre-tax dollars for qualified medical expenses in your HSA. Relatively healthy individuals who are good at budgeting could build significant savings due to the tax-advantaged growth of their HSA account.

Disadvantages: HDHPs typically have higher out-of-pocket expenses than other types of plans. Individuals unaccustomed to budgeting for routine healthcare, such as doctor visits and prescription drugs, could be in for sticker shock. People who want to combine their HDHP with an HSA can have no other health insurance coverage.
To discuss which type of plan may best meet your family’s needs, please call us.