Any individual struggling to manage their finances in a less-than-robust economy will certainly try and acquire the best possible insurance plan to cover their needs. Those who are managing their own businesses as entrepreneurs have an even more critical need to cover their risks regarding medical costs should the unexpected situation arise. Keeping the rising expense of premiums down, as well as having to face the consequences of dealing with any catastrophic illness requires a good understanding of individual health insurance plans.
Health Insurance Categories and Types
Choosing the most adequate health insurance plan certainly depends on an individuals particular need, preferences, and of course, budget flexibility. The health insurance business as a whole is certainly complex and competitive, and as the multitude of insurance providers each strive for market dominance, the differences or similarities in each type of medical plan offered can appear a bit confusing to say the least.
In a simple breakdown, health insurance coverage can be sorted into two primary categories: traditional and managed care. Brought down further, four more specific varieties of health care plans are available within those two primary categories:
- Traditional Insurance Plans – currently referred to as ‘fee-for-service’
- Preferred Provider Organizations – commonly referred to as PPOs
- Point-of-Service Plans – commonly referred to as POSs
- Health Maintenance Organizations – commonly referred to as HMOs
Three decades ago, the predominant type of health care coverage was known as traditional indemnity coverage, though the terminology has been altered to mean ‘fee-for-service’ to suit current policy configurations. These plans are designed to provide protection much like auto insurance, where an individual covers the front-end medical costs via a certain deductible amount, and the insurer pays the remaining majority of the expense for each claim. Since modern medicine produces the higher cost of health care, as well as extending people’s life-spans, insurers have designed the ‘managed–care’ concept as a means to reduce the operational expenses of doing business.
Fee-for-Service: This type of plan gives an individual the opportunity to choose the particular doctor, hospital, or other medical service provider they prefer. Opting for specialists is also permitted without seeking insurer permission. This type of plan generally demands a higher deductible, and typically insurers only cover what is described as ‘reasonable and customary’ medical expenses, though stipulate an expense cap for out-of-pocket fees paid by the individual policy holder.
Preferred Provider Organizations (PPOs): This type of plan is designed to allow individual policyholders a lower fee structure, but within an established network of medical service providers. While this coverage may not include many preventative care options, the in-network restriction provides an inexpensive co-pay system, requiring far less out-of-pocket or up-front payment risk, as well as smaller premiums and less paperwork. Going outside the network would result in the individual having to pay out the entire expense before receiving reimbursement from the insurer.
Point-of-Service (POS): While somewhat designed like the PPO, this form of managed care requires the oversight of a Primary Care Physician, and within the auspices of a network as well. Again, the costs are based on the incentive to stay with providers within a network, which represent lower out-of-pocket charges, less paperwork, though if the primary physician elects to refer an individual to a specialist outside of the network, the insure will generally pick up the entire expense. In addition, more extensive preventative care options are covered as well, such as wellness improvement programs, nutrition, smoking cessation, and other incentives.
Health Maintenance Organizations (HMOs): This type of plan is considered the least expensive managed care option, and generally are designed for groups rather than individuals. It is an in-network system, with a primary care physician, and offer a low co-pay, low premium, minimal paperwork form of coverage. These plans also offer the best preventative and health improvement program coverage as well.
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