Health Insurance, Basics

Everything you need to know about insurance


Insurance Q.& A. :   Health Insurance, Basics
The Basics

How to find affordable health insurance

Yes, you need to have health insurance. You also need to know what your policy covers. Here's a look at what you get with Traditional Indemnity Plans, HMOs and PPOs.

Very few people dispute the need for medical insurance. With skyrocketing medical costs, it’s an absolute necessity in today's world.

The good news is that there are more choices than ever. Even small companies with 15 or fewer employees can offer two or more plans, and there are more choices among individual policies, too. The availability of individual policies is especially critical to the growing legion of early retirees who need medical coverage, but are too young to qualify for Medicare.

There are three general types of medical insurance policies:
  1. Basic medical insurance, which covers hospitalization and other costs up to a certain amount.
  2. Major medical insurance, which provides coverage after you reach a deductible (sometimes $2,000 or more).
  3. Comprehensive major medical insurance, which combines basic and major medical insurance. You’re covered for routine doctor’s exams and for hospitalization.

Each of these is offered in varying degrees by the three major types of insurance programs: Traditional Indemnity Plans, health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

Too many people don’t know what their policies cover until it’s too late. Here’s a brief overview of the three programs and what they will
-- and won’t -- cover.

Traditional Indemnity Plan - Features:

bulletYou decide where and how you get your medical care. You choose your doctors and your hospital. The decisions you make are not subject to the approval of your insurance company, which is billed after-the-fact.
bulletYour out-of-pocket costs usually include a per-person deductible of $200 or so, a maximum family deductible of perhaps $1,000, and co-payments of about 20% of "reasonable and customary" charges. After you’ve paid a certain dollar amount out-of-pocket each year (called the “stop-loss” point), your insurer pays the rest of your covered medical charges for the year.


bulletYou have total freedom; you can get your medical care virtually wherever you want.


bulletInsurance companies increasingly want to control medical costs, so more costs are being shifted to you. If you end up using the policy very much, your own out-of-pocket expenses can make an indemnity policy more expensive than other types available.
bulletYou might have to pay your medical costs upfront and then apply for reimbursement from the insurance company, which might take months. Indemnity policies are probably not for you if cash flow is an issue.


Traditional indemnity policies are very common because of choice,
however as medical costs have escalated, insurers want to contain their costs and keep premiums affordable by controlling the process.

HMOs - Features:

bulletYou make one monthly payment and all of your medical care and services through the HMO are covered. It doesn’t matter how much your medical bills are. All you’re charged is a fee of about $5 to $15 per visit and a similar fee for having prescriptions filled.


bulletYou have a good idea of your medical costs upfront and your wallet is protected against catastrophe.
bulletThe HMO screens the doctors.
bulletOne-stop shopping -- services all under one roof.
bulletNo paperwork -- the HMO takes care of all those nasty referral forms that preferred provider organizations (PPOs) and indemnity plans make you responsible for.


bulletYour choices are limited to the HMO’s participating doctors and hospitals. Some HMOs now have an open-ended provision that allows you to get a portion of your medical care elsewhere. But you should expect to pay more out of your own pocket for outside care.
bulletIt can be much harder to see a specialist if your primary care physician doesn’t think that it’s necessary.


Good HMO candidates: people who are young and in good health (especially those planning to marry and/or start a family); families with children. People who don’t want to physically travel to different specialists and who like one-stop shopping.

Bad HMO candidates: People who can’t or who are unwilling to give up medical relationships with doctors outside their HMO.

PPOs - Features:

bulletPreferred provider organizations were established as a compromise between indemnity plans and HMOs. PPOs provide managed care but also meet consumer demand for control over whom you see and where you get your services.
bulletThe insurance company establishes a network of providers that are contractually required to care for you. If the doctor, hospital or pharmacy is within the network, you make a small co-payment once you reach the deductible. If you go outside the network, there is usually a much higher deductible and only 80% of the "reasonable and customary" costs are covered (you pay the other 20%).


bulletPPOs are more flexible than HMOs and you can choose to limit your medical costs by using doctors in the network.


bulletYou don’t have as much choice as with indemnity plans and you don’t know your true costs in advance.


Good candidates for PPOs: those who already have important doctor/patient relationships that they’re not willing to sacrifice by joining an HMO; those who want more control over the ability to see a specialist.

If you don’t mind getting the occasional referral form and you want more freedom of choice than an HMO, a PPO may be right for you.


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