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Health Insurance: Types and Definitions

(5/24/2012) Health insurance is a necessity, but for many it’s also a confounding purchase. Navigating the types of health insurance, and understanding the rules associated with each, is an important step towards ensuring the best coverage for today and tomorrow.

Health insurance can be divided into two main types - private plans and government-funded plans.

PRIVATE PLANS
These are the most common plans available. Employers offer different plans to their employees, but this type of insurance is also available for individuals to purchase on their own. There are 4 types of private plans.

Health Maintenance Organization (HMO) plans are organized around the principle of paying for your coverage in advance, rather than paying for services separately. Your monthly premium covers a range of benefits from preventive care to dental or vision coverage. With an HMO, you will need to designate a “Primary Care Physician” who is in your “network” (the group of physicians registered with the HMO) who will be responsible for your care. Obtaining additional services, such as x-rays, specialist consultations, and psychiatry, will usually need to involve obtaining an official recommendation from your Primary Care Physician in order to be covered. HMOs typically require a co-payment for office visit, hospital stays, or specialist care.

Point of Service (POS) plans are specialized HMOs that offer more control over your own health care. Instead of always getting a referral from your Primary Care Physician, you can also get care through a provider not covered by your HMO, and receive coverage under out of network rules.

Preferred Provider Organizations (PPOs) offer access to a wider range of doctors, hospitals, clinics and other providers. You can see doctors within the PPO’s network, or you can opt for clinicians outside the network. However, this typically requires more out-of-pocket costs on your part - plans will cover a certain percentage of costs, with out-of-network professionals requiring more fees.

Fee for Service Plans (Indemnity) are simple and traditional. For every service you receive, from any provider you select, your plan will reimburse you. This usually involves submitting claims for each instance of care after you’ve received the service and paid. This type of plan requires an annual deductible be paid before it begins to reimburse you for any covered services.

GOVERNMENT-FUNDED PLANS
Two primary plans exist under this heading. Medicaid is typically provided for low-income individuals and families, while Medicare is usually offered for individuals over age 65. Important to realize is these plans don’t provide comprehensive coverage, but instead often cover specific items.

In addition to private and government-funded plans, additional policies or “riders” (additions to your policy) may be purchased to cover specific instances. One of the most popular and cost-effective is a savings-based plan, referred to as Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs), and Flexible Spending Accounts (FSAs). With these, you can set aside tax-deferred funds that can be used for a number of health services, including office visits, specialists, and even the purchase of medications, certain vitamins, and other other pharmacy items.