A health insurance policy is a legal agreement in which an insurer gives coverage for medical costs for a certain price. That price is called a premium and for people employed by larger companies, it is often paid by the employer. It can also be paid by individuals themselves or by groups that buy insurance together.
Types of Health Insurance
There are three basic types of health insurance: fee-for-service plans, managed care plans and preferred provider organizations. Each type has pros and cons that must be weighed carefully when making insurance decisions.
Fee-For-Service Plans
Fee-for-service plans give the most flexibility in choosing health care providers and treatment facilities. However, this choice comes at a cost in terms of both money and time. In a fee-for-service plan, insurance will only reimburse part of medical costs (for example, you might pay 20 percent of the cost and the insurer 80 percent). The part paid by you is called the co-payment or co-insurance. And, you may have to pay some of the medical costs each year before the insurance payments begin. This pre-set amount is called a deductible. No matter how much you pay in terms of the deductible and co-insurance, the insurer still makes the final decision on whether a certain procedure or cost will be eligible for reimbursement.
In a fee-for-service plan, you may also spend a lot of time coordinating your medical care and filing for reimbursement. With these plans, you are responsible for keeping track of your own expenses, such as receipts for drugs and other medical costs. And, to get payment for fee-for-service claims, you may have to fill out forms and send them to the insurer.
Managed Care Plan
Compared to fee-for-service plans, managed care plans and health maintenance organizations (HMOs) have less flexibility in choosing health care providers and treatment facilities. However, people with these plans pay less money for medical care.
Managed care plans are often called "prepaid health plans" because most of a plan's services are covered by the monthly or quarterly premiums. The only amount you usually need to pay is a small co-payment for office visits and hospital stays. Also, there is rarely a need to submit claims forms for reimbursement. As a result, with a managed care plan, you usually have less paperwork and less record- keeping than in a fee-for-service plan.
The possible drawback of a managed care plan is that you must use health care providers and facilities that belong to the plan. Your care is coordinated through your primary care physician, who controls all referrals to specialists..
Preferred Provider Organization
The preferred provider organization is a blend of the fee-for-service and managed care plans. In a preferred provider organization, you can make choices on a service-by-service basis. You can see a health care provider from within the plan’s network and have most of your medical expenses covered, or you can see a provider from outside of the network and have fewer expenses covered.
Pros and cons of different types of health insurance plans
| |
Pros |
Cons |
| Fee-for-service plans |
Most flexibility in choosing health care providers and treatment facilities
|
Only covers a portion of medical costs
May have a deductible
Insurer makes the final decision on whether a procedure or cost is eligible for reimbursement
Must coordinate own medical care, track all expenses and file for reimbursement (lots of paperwork)
|
| Managed care plans |
Costs less than a fee-for-service plan
Pay premiums and small co-payments for office visits and hospital stays
Do not usually need to submit claim forms for reimbursement
Less record-keeping (paperwork) compared to a fee-for-service plan
|
Must choose health care providers and treatment facilities that belong to the plan (limited number of each)
Care is coordinated through a primary care physician who controls all referrals to specialists
|
Preferred provider organization
|
Blend of fee-for-service and managed care plans
For each medical service, can choose if want to see a health care provider/facility from within the plan and have most expenses covered or choose a provider/facility outside of the plan and have fewer expenses covered
|
May be more expensive than a managed care plan
May have more record-keeping than a managed care plan
|
Updated 02/02/09
