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Health Insurance

 

 

Making Treatment Decisions
Fact Sheet

A health insurance policy is a legal agreement where an insurer gives coverage for costs related to medical care for a certain price. That price is called a premium. For people employed by larger companies, it is often paid by the employer. It can also be paid by an individual or by groups that buy insurance together.

Types of health insurance

There are three basic types of health insurance:

Each type has pros and cons. If you have a choice through your employer or you are buying an individual policy, weigh the pros and cons when making insurance decisions. For example, a fee-for-service plan gives the most flexibility, but you pay more in terms of time (such as time spent doing paperwork) and money. With a managed care plan, you pay less, but you have fewer choices. With the preferred provider organization, you can leave your options open and balance flexibility and cost each time you make a health care decision.  

Fee-for-service plans

Fee-for-service plans give the most options in choosing health care providers and treatment centers. However, these plans may cost more and require more time doing paperwork.

Co-payments and deductibles

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 pays 80 percent). The part paid by you is called the co-payment or co-insurance.  

You may have to pay a pre-set amount of your medical costs each year before the insurance payments begin (called a deductible).  

No matter how much you pay in terms of the co-payment and deductible, the insurer makes the final decision on whether a certain procedure or cost will be reimbursed.

Time on paperwork

In a fee-for-service plan, you may spend a lot of time coordinating your medical care and filing for reimbursement. With these plans, you must keep track of your own expenses, such as receipts for drugs and other medical costs. To get payment for fee-for-service claims, you may have to fill out forms and send them to the insurer.  

Managed care plans

Compared to fee-for-service plans, managed care plans and health maintenance organizations (HMOs) have fewer options in choosing health care providers and treatment centers. You must use providers and centers that belong to the plan. Your care is coordinated through your primary care provider, who controls all referrals to specialists.  

This lack of flexibility may be a drawback for some. However, you pay less money for medical care.

Premiums and co-payments

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 co-payment for office visits and hospital stays.

Time on paperwork

With managed care plans, you rarely need to submit claims forms for reimbursement. As a result, you usually have less paperwork and less record- keeping than in a fee-for-service plan.   

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 the network and have fewer expenses covered.

Comparing options for health insurance

There is trade-off between cost and flexibility with each type of health insurance. No one health insurance option is right for everyone. Weighing the pros and cons can help you choose the one that is right for you. 

 

Pros  

Cons 

Fee-for-service plans 

Most options in choosing health care providers and treatment centers

Only covers a portion of medical costs

May have a deductible

Insurer makes the final decision on whether a procedure or cost is reimbursed

Must coordinate own medical care, track all expenses and file for reimbursement (lots of paperwork)

Managed care plans (such as HMOs) 

Costs less than a fee-for-service plan

Pay premiums and co-payments for office visits and hospital stays

Rarely need to submit claim forms for reimbursement

Less record-keeping (paperwork) compared to a fee-for-service plan

Must choose providers and treatment centers that belong to the plan (limited number of each)

Care is coordinated through a primary care provider who controls all referrals to specialists

Preferred provider organization 

Blend of fee-for-service and managed care plans

For each medical service, can choose a provider and treatment center from within the plan and have most expenses covered or can choose a provider and treatment center outside the plan and have fewer expenses covered

May be more expensive than a managed care plan

May have more record-keeping (paperwork) than a managed care plan

Pre-existing conditions

As part of the Affordable Care Act (health care reform), insurance companies will no longer be able to apply limits on pre-existing conditions in 2014. Until that time, the law provides for a Pre-Existing Condition Insurance Plan for people who have been uninsured for six months or more due to a pre-existing condition. These plans are run by state governments and thus, options vary by state. Learn more about Pre-Existing Condition Insurance Plans.

Updated 12/13/13

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