When you start a new job, or once a year when it’s “open enrollment” time at work, you are given a mound of materials and have to decide which medical insurance option to sign up for. Where does one begin? How can we make a wise decision when the information is Greek to us?
First there are two broad categories of health care coverage:
• Traditional Plans (Also known as fee for service or Indemnity plan)
• Managed care
There are similarities between the two categories. They both cover a variety of medical, surgical and hospital services and some also include coverage for prescription drugs.
It is important however to know the differences between the two categories in order to make the best decision on which coverage type is right for you.
Traditional Plans: Fee for Service/Indemnity Plans
This type of coverage allows you to go to any provider you choose. After you meet your annual deductible, the plan pays a certain percentage of your health care services – typically 80% – and you pay the remaining amount. What you pay depends on what medical costs are covered by your plan and what your providers charge for the services.
A covered service does not mean the insurance will be paying the entire cost of the doctor’s visit. Rather the amount you will be reimbursed will depend on your deductible and coinsurance provisions of your plan.
(See previous blog, Understanding Health Insurance for definition of deductible and coinsurance ,or use the link at right, Common Insurance Terms and Definition)
Under a Traditional plan, health insurance companies, reimburse providers based on a fee scale called the “reasonable and customary charge”. If your deductible has been met, you are responsible for a % of the bill (coinsurance) plus the balance not covered by insurance,above the reasonable and customary amount.
Reasonable & Customary The average fee charged by a particular type of health care practitioner within a geographic area. The term is often used by medical plans as the amount of money they will approve for a specific test or procedure. If the fees are higher than the approved amount, the individual receiving the service is responsible for paying the difference. Sometimes, however, if an individual questions his or her physician about the fee, the provider will reduce the charge to the amount that the insurance company has defined as reasonable and customary.
These policies generally have an out of pocket maximum.
Out-Of-Pocket Maximum: A predetermined limited amount of money, a “cap” dollar amount that an individual must pay out of their own pocket, before an insurance company will pay 100% for an individual's health care expenses.
However if the provider you are seeing charges more than the reasonable and customary charges allowed, these amounts you are paying above what the insurance company agrees is an acceptable fee do not accumulate towards your out of pocket maximum.
Finally, most plans have lifetime limits on benefits paid under the policy. You should look for a policy with at least a lifetime maximum of $1 million. Traditional plans are no longer a common insurance plan used.
Managed Care
Managed care plans generally provide a large scope of health services to their members and offer financial incentives for patients to use the providers who belong to the plan
There are three major types of managed care plans:
• Health Maintenance Organizations (HMOs)
• Preferred Provider Organizations (PPOs)
o Traditional
o High Deductible with personal care account (PCA)
• Point-of-Service (POS)
o Traditional
o Consumer Driven/Consumer Choice (also called High Deductible Health Plan or
HDHP)
HDHP)
Health Maintenance Organization (HMO)
If you belong to an HMO, typically you must receive all your medical care through the plan. Generally, you will select a primary care physician (PCP) who coordinates your care. The primary care physician is responsible for referring you to specialists when needed An HMO plan is a good choice if you are willing to use certain providers in exchange for lower out-of-pocket costs.
How an HMO works
With an HMO you’re responsible for copayments – fixed fees you pay when you see a doctor, have a prescription filled, or are admitted to the hospital. Plus you:
• You select a primary care physician (PCP) who tends to the majority of your health needs and refers you to other in-network providers, if necessary. Each family member can choose his or her own PCP.
• You seek guidance from your PCP when you need specialty care. Referrals to specialists may be required. A PCP is usually a general, family, or internal medicine doctor (internist), or a pediatrician.
• Take advantage of in-network savings. An HMO pays benefits only when you use doctors and hospitals in the plan’s network. For covered services at in-network providers, you pay a copayment and the plan pays the rest.
• Use out-of-network providers wisely. Coverage for services from out-of-network providers is only provided for true life threatening emergencies or when your insurance provider has given prior authorization.
Network: A group of doctors, hospitals and other health care providers contracted to provide services to insurance company’s customers for less than their usual fees. Provider networks can cover a large geographic market or a wide range of health care services. Insured individuals typically pay less for using a network provider.
Out-of-Network: This phrase usually refers to physicians, hospitals or other health care providers who are considered nonparticipants in an insurance plan. Depending on an individual's health insurance plan, expenses incurred by services provided by out-of-plan health professionals may not be covered, or covered only in part by an individual's insurance company.
Preferred Provider Organization (PPO)
With a Preferred Provider Organization (PPO), you typically pay less for care when you use in-network providers – doctors, hospitals, and pharmacies that are part of the PPO network.
Network. Depending on an individual's health insurance plan, expenses incurred by services provided by out-of-plan health professionals may not be covered, or covered only in part by an individual's insurance company. The plan does not require referrals. The PPO plan is a good choice for people who are willing to have larger paycheck deductions in exchange for lower out-of-pocket costs.
How a PPO Works
• Your deductible might be lower. With a traditional PPO plan, the deductible is usually lower than a PPO with a spending account.
• You can choose any provider. With a PPO plan, you decide whether you want to use in-network doctors or not. If you "step outside the network," your copayment, deductible, and coinsurance costs will be higher – sometimes significantly higher.
• The out-of-pocket limit gives you peace of mind. A PPO plan limits the amount of money you'll spend within the plan year. If you reach this limit, called the "out-of-pocket maximum," the plan pays 100 percent of additional covered expenses during the plan year. You continue to pay copayments.
PPO out-of-pocket costs
With all PPO plans, your out-of-pocket costs may include: co-payments, deductible & coinsurance
Copayments – A fixed fee you pay when you see a doctor, have a prescription filled, or are admitted to the hospital. Copayments are generally lower for services from primary care doctors than for specialists.
PPO High Deductible with Personal Care Account
Personal Care Account (PCA) also called a Healthcare Reimbursement Arrangement (HRA) plans combine a low-premium, high-deductible Preferred Provider Organization (PPO) plan with a spending account funded by your employer. A PCA is like an “expense account” your employer puts money into. You can use the funds for qualified medical expenses like doctor's office visits, as well as other eligible healthcare costs. The funds in this account do not go with you if you leave your job or retire. These plans are based on the IRS's approved Health Reimbursement Arrangement (HRA) guidelines.
How a Personal Care Account PPO Works
The PCA PPO plan gives you choice and flexibility in how you pay for healthcare:
• You use PCA funds for eligible medical expenses, including the deductible, prescription drugs, vision, and dental care. (Your employer determines the kinds of expenses that are eligible.)
• You have access to the full amount of your employer's contribution on the first day of the plan year.
• Depending on your plan design, you may receive a Debit Card. At many healthcare provider locations, you can use your Debit Card to pay directly from your account. Because of IRS regulations, you should make sure to keep a receipt in case you need to prove your expense was qualified.
• No copayments for medical services. PCA plans don’t require copayments for doctor’s office visits, preventive care, and hospital services. Ask your in-network provider to bill you after your insurance provider processes the claim and calculates your member discount. Then give the doctor’s office your Debit Card number to pay directly from your PCA.
• Use it for costs beyond your health plan. Besides using your PCA for out-of-pocket costs specified in your plan, like medical and pharmacy copayments, some employers allow you to spend PCA funds on other qualified medical expenses, including:
o Orthodontia, dental cleanings, and fillings
o Prescription drugs
o Physical therapy, speech therapy, and chiropractic expenses
• Once PCA funds are gone, you have to meet the remaining deductible and coinsurance requirements of the PPO plan.
Point of Service (POS)
Many people call POS plans "an HMO with a point-of-service option." From the consumer’s point of view, these plans combine features of a Traditional plan with an HMO.They offer more flexibility than HMOs, but premiums are likely to be somewhat higher.
What is the difference between a PPO and a POS plan? A POS plan has primary care physicians who coordinate patient care; and in most cases, PPO plans do not. But there are exceptions! With Point of Service (POS) plans, you can reduce your out-of-pocket costs by choosing providers in the network – or you can seek services outside the network and pay more. It's your choice.
POS plans can be "traditional" or "consumer-driven."
How a POS Plan Works
POS plans combine the advantages of a Health Maintenance Organization (HMO) plan with the flexibility of a Preferred Provider Organization (PPO) plan. When you receive services from in-network providers, the plan covers more of your costs. You also have the choice to go outside the network – but you'll pay more.
• You have access to in-network savings with the HMO providers in your network
• The plan also pays benefits for covered services from out-of-network providers
• Depending on your plan design, you may or may not need a primary care physician (PCP);
• With most plans, referrals aren't necessary for out-of-network services
• Traditional plan designs have copayments for most services
Traditional and Consumer-Driven POS Plans
The difference between "traditional" or "consumer-driven" plans is how you pay out-of-pocket costs. Traditional plans usually have copayments and coinsurance. Consumer-driven plans usually have a higher deductible can not have copayments but may have coinsurance. Consumer-driven plans can be paired with a Health Savings Account (HSA) or Health Care Reimbursement (HRA) to help you pay healthcare costs.
Consumer Driven/Consumer Choice/High Deductible Health Plan (HDHP)
Consumer choice products are the newest type of insurance plans on the market, These plans feature lower premiums and can be paired with a Health Savings Account (HSA) or an HRA (same benefits as HRA discussed above with the High Deductible PPO plan). A HSA allows you, your employer, or both to contribute tax-free money to set aside tax-free money for current-year healthcare expenses and build savings for the future. Unused money stays in your account from year to year and earns tax-free interest. The HSA also gives you an investment opportunity and you do not pay taxes on contributions or earnings. The funds belong to you and go with you if you change jobs or retire. The goal of these types of health insurance plans is to provide financial incentives for consumers to consider the cost of services and the value of alternatives.
With a consumer driven health plan, the consumer is responsible for lower-cost services (like check-ups), and the insurance plan is responsible for higher-cost care that is frequently not discretionary (like a necessary surgical procedure) after the deductible has been met.
The minimum deductible amount is set by the IRS. The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2010.
Self-only coverage Family coverage
Minimum annual deductible $1,200 $2,400
Maximum annual deductible and
other out-of-pocket expenses * $5,950 $11,900
other out-of-pocket expenses * $5,950 $11,900
* This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.
How an HDHP Works
A High Deductible Health Plan gives you solid healthcare coverage and greater control over healthcare spending:
• No copayments - When you have medical and prescription costs, they apply to your deductible.
• Specified out-of-pocket maximum - The plan has a built-in cap on annual healthcare expenses; your deductible applies to the maximum.
• Lower premiums - High Deductible Health Plans usually have lower premiums than other kinds of health plans.
Next blog…..how to understand the “rules” to your health plan and common health plan terms.
