Health insurers want to keep costs down, and you want to keep your health up. Sometimes these two agendas clash, and it can feel like your insurer doesn't have your best interests in mind. However, you can make the most of your health insurance by understanding the options available to you and choosing a plan that best suits your needs. We'll show you how.
Alphabet Soup: HMOs, PPOs and More
With so many varieties of health insurance out there, sorting through the acronyms, options, restrictions and requirements can be mind boggling. Two major categories of health plans hold the field - indemnity and managed care - but even then the lines between them are beginning to blur.
- Indemnity Insurance
Old-school health insurance is indemnity insurance, a fee-for-service plan where you can visit any doctor, anywhere, for any reason. Of course, there's a price for such whimsy. Indemnity insurance pays only part of your medical bills - you are on the hook for the rest. You must spend a certain amount each year, your deductible, before your plan starts paying, at which point the plan usually covers 60-80% of your expenses. Indemnity insurance was once the most common insurance. But over the past decade, rising healthcare costs have translated into rising deductibles, and indemnity plans have fallen out of favor. (To learn more, read Understand Your Insurance Contract.)
- Health Maintenance Organizations
With fees for indemnity insurance taking a bigger bite out of consumer wallets, a new system emerged to control costs: the health maintenance organization (HMO). HMOs sign contracts with specific doctors and hospitals, and that group becomes the plan's network. With an HMO, you may have no deductible and your co-payments are usually low. You pay a monthly premium and your HMO covers doctor visits, hospital stays, emergency care, lab tests, X-rays and therapy. You choose a primary care physician who oversees your medical care, but you must get a referral from your doctor to see a specialist. You cannot visit a doctor or hospital outside of your network if you want your insurance to cover the visit.
This is the simplest and cheapest form of insurance, and it most benefits those who are healthy and not supporting anyone but themselves. HMOs are meant to provide preventive care: you visit your primary care provider regularly, so you can nip any health problems in the bud and thus avoid the expense of specialists.
- Preferred Provider Organizations
Preferred provider organizations (PPOs) combine HMOs and indemnity plans. You can visit your primary care provider and your plan should pay for your total visit. Or, you can visit a specialist - within the network, but without a referral - and your plan should pay at least part of your bill.
- Point of Service Plans
A mix of indemnity insurance, HMOs and PPOs, is the point of service (POS) plan, which lets you choose from three tiers of service. You can see your HMO doctor, and your insurance picks up the tab. Or, you can see a doctor within the PPO network and make a co-payment. Finally, you can visit a doctor outside the network, and after you meet your deductible, the plan will pay a share of the expense. With a POS plan, you get the savings of managed care with the control of an indemnity plan. But because you make your own choices, you need to be savvy about the financial consequences of those choices.
- Consumer-Driven Health Plans
In the land of the consumer-driven health plan (CDHP), high-deductible health insurance joins forces with a health savings account (HSA). This type of policy is also sometimes referred to as a high-deductible health plan, or HDHP. A CDHP is almost like a return to the whimsical days of indemnity insurance: you can usually see any doctor you like and visit any hospital. An HSA is a tax-free savings account where you set aside money for future medical care. A high-deductible health plan gives you comprehensive coverage, but you must pay out-of-pocket until you reach your deductible. (To learn more about HSAs, see Fighting The High Costs Of Healthcare and Health-y Savings Accounts.)
The savings you get with a CDHP is that you pay low monthly premiums because you are setting aside money in your HSA. The problem here is that it can take a few years to build up your HSA. If you get sick, you could have trouble paying for medical care. The CDHP can be a good option if you're healthy or you've already stashed some cash for medical expenses. (For further reading, see Build Yourself An Emergency Fund.)
Catastrophe and Short-Term Policies
It's not uncommon to find yourself between plans and searching for interim coverage. If you carried health insurance through a job, your health benefits may be protected by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). An employer with 20 or more employees must offer continued coverage for you and your family for 18 months after you leave. You must notify your employer that you want this option within 60 days of losing coverage. You also must pay the entire premium for the cost of the coverage. The length of coverage can range from 18 to 36 months.
For those who did not have a prior plan through an employer, short-term health insurance can provide coverage for 30 to 180 days. You get coverage in the event of an accident or a sudden illness and your policy pays for inpatient and outpatient services, hospital charges, lab work and X-rays. Coverage usually begins as soon as the insurer receives your application and first premium payment. Short-term insurance can help you gain long-term coverage later on, as it shows proof of your health and your viability as a policyholder.
While health insurance provides the means for you stay healthy with an annual checkup, most people worry over what will happen in an emergency. Will your plan pay? What if you have to go to a hospital outside your network? The government has taken some strides to protect you against unreasonable denials from your health insurance carrier.
State laws attempt to govern the ways in which insurance carriers are responsible to their policyholders, but the laws in each state vary. Among a long list of guidelines, health plans must:
- provide, without prior authorization, coverage for emergency services
- pay, contest or deny claims within disclosed required time periods
- not restrict information about medical care options that are in your best interest
- give you the right to a second medical opinion
- establish a procedure for resolving grievances
The Patient Bill of Rights is an effort to establish a federal set of guidelines to protect healthcare consumers, from assuring that you have a reasonable choice of providers to passing a federal "prudent layperson" law so that if you visit the emergency room because you believe your life is in danger, your health plan cannot deny coverage if your diagnosis returns as non life-threatening. (To learn more about handling emergency medical expenses, see Steering Clear of Medical Debt.)
You don't want to scrimp on healthcare, but if you're healthy, there's no reason to fork over money for a policy with features you don't need. The law requires that your health plan give you adequate information, so read the fine print before you start paying your premiums.