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The Basics
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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.
By
Ginger Applegirth
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:
- Basic medical insurance, which covers
hospitalization and other costs up to a certain amount.
- Major medical insurance, which provides coverage
after you reach a deductible (sometimes $5,000 or more).
- 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:
 | You 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.
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| Your 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.
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Advantages:
| You have total freedom; you can get your medical
care virtually wherever you want.
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Disadvantages:
| Insurance 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 much more expensive than other types available.
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| You might have to pay your medical costs upfront
and then apply for reimbursement from the insurance company, which can
take months. Indemnity policies are probably not for you if cash flow
is an issue.
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Verdict:
Traditional indemnity policies aren’t very common any more. As medical
costs have escalated, insurers want to contain their costs and keep
premiums affordable by controlling the process. Insurance companies hate
indemnity plans.
Unless you are a control freak or your doctor isn’t in any other plan,
avoid them unless you have no other options. The only exception is if
you’re young and healthy and don’t expect to actually need the coverage.
In that case, you can lower your premiums by choosing a higher
deductible (say, $1,000). But be sure to invest what you’ll save in
premiums, so that if you do have medical expenses you’ll be able to pay
that higher deductible.
HMOs
Features:
| You 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.
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Advantages:
| You have a good idea of your medical costs upfront
and your wallet is protected against catastrophe.
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| The HMO screens the doctors.
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| One-stop shopping -- services all under one roof.
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| No paperwork -- the HMO takes care of all those
nasty referral forms that preferred provider organizations (PPOs) and
indemnity plans make you responsible for.
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Disadvantages:
| Your 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.
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| It can be harder to see a specialist if your
primary care physician doesn’t think that it’s necessary.
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Verdict:
Good HMO candidates: people who are young and in good health (especially
those planning to marry and/or start a family); families with children;
older people (who tend to see doctors frequently, who don’t want to
physically travel to different specialists and who like one-stop
shopping); and those on a tight budget.
Bad HMO candidates: People who can’t or who are unwilling to give up
medical relationships with doctors outside their HMO.
PPOs
Features:
| Preferred 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.
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| The 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%).
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Advantages:
| PPOs are more flexible than HMOs and you can choose
to limit your medical costs by using doctors in the network.
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Disadvantages:
| You don’t have as much choice as with indemnity
plans and you don’t know your true costs in advance.
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Verdict:
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.
Related Reading:
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