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Sunday, September 05, 2010

..:: Health Insurance ::..

What are the different types?

There are 5 main types of health insurance. Traditional indemnity plans are at one end of the spectrum and Health Savings Accounts (HSAs) are at the other, while health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point of service plans (POS) are generally considered managed care plans and are in the middle of the insurance spectrum. Except for the HMO, these plans don’t usually require you to obtain a referral to seek care, but they will pay higher benefits for using in network doctors as opposed to going to an out of network doctor.

It's important to understand the differences between the 5 main types of plans as well as the differences between the many companies offering health insurance before making your final decision. We urge you to contact us to discuss the differences after you have familiarized yourself with each. Keep in mind that it is becoming harder to distinguish between one company’s benefits vs. another. The difference usually lies in the fine print! The distinction between the different types of managed care policies, indemnity plans and HSA plans is also getting harder to define as they all employ some of the same cost savings techniques. The DeChristopher Group is an independent agency and therefore has no vested interest in which plan or company you chose. Our only goal is to help you decipher between the various options and guide you to the policy that will meet your needs. If we can be of assistance, please contact us.

Indemnity Plans

Indemnity plans are characterized by deductibles, coinsurance, policy maximums and reasonable and customary charges. Deductibles are amounts of covered expenses you must pay before the insurer will start reimbursing you for your medical bills. Deductibles range from $250 to $5000 per year for an individual or family. The higher your annual deductible, the lower your premiums.

After you have satisfied your deductible then you and the insurance company split the expenses up to your policy maximums, this is called coinsurance. The most common coinsurance level is 80/20% and 70/30%. This means that the insurance company will pay either 80 or 70% of the covered service and you will pay the remaining 20 or 30%. You will continue this arrangement until you have reached your out of pocket maximum. This is the most you will spend in any calendar year. Once you have reached your out of pocket maximum for the year, the insurance company will pay all remaining covered expenses at 100%.

An indemnity plan allows you to go to the doctor or hospital of your choice because there is no “network” of providers to choose from and there are little to no cost containment features like you would find in a managed care plan. The freedom of choice you get with the indemnity plan also has its drawbacks. Indemnity plans do not have negotiated pricing and the provider you choose is free to charge whatever he/she feels is appropriate. Insurance policies will only reimburse you for “covered” medical expenses. While most indemnity plans pay a large percentage of covered expenses, these expenses are only covered up to the “usual and customary” level. There’s the catch. For example, if your insurance company determines that the usual and customary fee for a routine physical is $100, the insurance company will pay $80 (depending on plan design) and you will pay the remaining $20. However, if your doctor charges more than the usual and customary fee, $150 for example, you would be required to pay the additional $50, making your total expense $70. The excess $50 does not go towards your deductible or your policy maximum.

Preferred Provider Organization (PPO)

PPO (preferred provider organization) is a dual option plan. You have both in and out of network benefits. All PPO plans are IPA style (Independent Practitioner Associations) which means that they are independent practices that have agreed to operate as a PPO doctor for your plan. They are not employees of the insurance company and as such are free to make independent health care related decisions; however, they are obligated to abide by the cost containment provisions of their contract. One of the most prominent features of the PPO is the freedom to use any provider in the network without having to obtain a referral. The ability to control your own delivery of care is one of the main reasons people prefer PPOs to HMOs. Thus, if you wish to see a specialist simply pick a participating provider from the provider directory.

PPOs like HMOs negotiate discounts from providers therefore, when you see a physician in the network, you typically make a co-payment for service, such as $10 or $20 and pay some coinsurance depending on plan design. However, you will not be subject to balance billing as in the case of the indemnity plan because of the negotiated pricing. Therefore, usual and customary fees do not apply to in network services. For example, your plan may reimburse you for 90 percent of the cost of an x-ray if preformed in the doctor’s office if you go to a provider within the network. So after the office visit, you’ll owe 10 percent of the total bill, plus your co-payment.

When you see a physician out of network, you will receive coverage, but at lower levels depending on plan design. Please see the indemnity plans section above for an explanation of how this benefit works.

Point of Service (POS)

A point-of-service plan (POS) is characterized with elements of a health maintenance organization (HMO), a preferred provider organization (PPO) and an indemnity plan, sometimes referred to as a triple option plan. There are many variations of this type of health plan; however, at the time of service you have the option to access your health care with any of the available options, hence the term Point of Service.

Depending on the insurance company, you generally have to two or three options available, when seeking health care.

Option 1 is HMO coverage. You will choose a primary care provider and go through the referral process to see a specialist. Some POS plans are open access plans and do not require the referral even though you are in an HMO contract. Please see the HMO section for more detail.

Option 2 is PPO coverage. You will choose a doctor from the participating provider directory and services usually require a co-payment and coinsurance. Please see the PPO section for more detail.

Option 3 is indemnity coverage. You can obtain services from a provider outside of the HMO and PPO networks. These services will be reimbursed according to reasonable and customary schedules.

Health Savings Account (HSA)

Health Savings Accounts (HSAs) were created by Public Law 108-173, the "Medicare Prescription Drug, Improvement and Modernization Act of 2003," signed into law by President Bush on December 8, 2003. Health Savings Accounts will change the way millions meet their health care needs because they are designed to help individuals save for qualified medical and retiree health expenses on a tax-advantaged basis.

Any adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish an HSA. Tax-advantaged contributions can be made in three ways:

1. the individual or family can make tax deductible contributions to the HSA even if they do not itemize deductions;

2. the individual’s employer can make contributions that are not taxed to either the employer or the employee; and,

3. employers sponsoring cafeteria plans can allow employees to contribute untaxed salary through salary reduction.

To encourage saving for health expenses after retirement, individuals age 55 and older are allowed to make additional catch-up contributions to their HSAs. Once an individual enrolls in Medicare they are no longer eligible to contribute to their HSA.

Amounts contributed to an HSA belong to the account holder and are completely portable. Funds in the account can grow tax-free through investment earnings, just like an IRA.

Funds distributed from the HSA are not taxed if they are used to pay qualified medical expenses. Unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year, unused funds remain available for use in later years.

Health savings bank account component of this product is not offered through The DeChristopher Group or Investors Security Company, Inc.

Use the links below to see an explanation of qualified medical expenses.
IRS Publication 502 Medical and Dental Expenses
IRS Website - Publication 969

Health Maintenance Organization (HMO)

Most Health Maintenance Organizations (HMOs) require you to choose a primary care physician affiliated with your plan, usually a general practitioner, family practice, internist, pediatrician, or OBGYN to coordinate your care. Most HMO plans are IPA style (Independent Practitioner Associations) which means that they are independent practices that have agreed to operate as an HMO doctor for your plan. They are not employees of the insurance company and as such are free to make independent health care related decisions; however, they are obligated to abide by the cost containment provisions of their contract. One of the most prominent features of the HMO is the referral process. The ability to control the delivery of care is one of the main cost saving techniques utilized by HMOs. This is to prevent “frivolous” visits to a specialist when a primary care doctor is more appropriate. Thus, if you wish to see a specialist you must first receive a referral from your primary care doctor. The trade off / benefit to you for giving up the right to control the delivery of care is that your only out of pocket expense is usually a co-payment of $10-$30 dollars for office visits and $50-$100 for hospitalizations. Negotiating discounts from providers is another way HMOs control costs and that is why you usually have to use doctors who are in network.

This is neither an offer nor solicitation to buy or sell securities of any type. I am registered in the following states: VA, MD and DC. Securities are offered through Investors Security Company, Inc., Member FINRA and SIPC, 127 E. Washington Street, Suite 101, Suffolk, Virginia 23434, (757) 539-2396.

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