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Types of Health Insurance

There are two main categories of health care insurance:

  • Indemnity Plan. You are reimbursed for medical expenses regardless of which provider you use meaning you have the freedom to choose doctors and hospitals. These plans also allow the insured to use any hospital in any part of the country. Generally a yearly deductible is charged and a percentage of costs above the deductible are covered. There are three common practices that are used to determine the amount of reimbursement in an indemnity plan (there are also some limitations regarding the amount, which you have):
    • Reimbursement of actual charges. The insurer reimburses you for the actual cost of your medical care regardless of the cost. There may be procedures or services that aren't covered.
    • Reimbursement of a percentage of actual charges. The insurer pays a set percentage of the actual charges on covered procedures and services, regardless of the cost, and you pay the difference.
    • Indemnity. The insurer pays a specified amount per day for a predetermined number of days regardless of the actual cost of care. The reimbursements, however, will never be more than the actual expenses.

  • Managed Care Plan. In general, there are three types of managed care plans. They are similar in nature but the programs are different. The common feature is that all three have an arrangement between an insurer and a network of selected health care providers. They offer financial incentives to the insured to encourage them to use the providers in the network. They usually have specific guidelines regarding the selection of providers and formal procedures that must be followed. The basic types of managed care plans are:
    • HMOs (Health Maintenance Organizations). HMOs provide treatment on a prepaid basis. As a member, you pay a set monthly fee regardless of the amount of medical care needed. In exchange for the fee, the HMO provides a wide variety of services including doctors' visits, hospital stays, emergency care, surgery, lab tests, x-rays, and therapy. In most cases, HMO members have to receive their medical treatment from providers in the network, although there are some exceptions in emergencies or when medically necessary.
    • PPOs (Preferred Provider Organization). PPOs are organizations made up of doctors and hospitals (known as preferred providers) that only serve a specific group or association. It is possible, however, to use doctors who are not part of the plan and still receive some coverage. That is why this type of plan is suited for individuals who want an HMO style prepaid plan while keeping the freedom to use a doctor that is not part of the network. As with HMOs, these plans are focused on preventative care and include a broad range of services. As a PPO member, you generally pay for services as they are received and are reimbursed for the cost of the treatment less your co-payment. The price of certain services is determined in advance, and that is the price charged for the duration of the agreement.
    • POS (Point of Service Plans). POS plans are unique because the insured doesn't pay a deductible and usually only pays a minimal co-payment when using a provider in the network. POS programs generally require you to choose a Primary Care Physician (PCP) who makes referrals to other providers in the network. Usually, if you seek medical care outside of the network, you will be responsible for full payment, which may be considerable. On the other hand, if your PCP gives a referral for you to see a specialist outside of the network, the insurer will cover most of the cost.

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