Managed Care: A Way to Control Costs
Managed care influences how much health care you
use. Almost all plans have some sort of managed care program to help
control costs. For example, if you need to go to the hospital, one
form of managed care requires that you receive approval from your
insurance company before you are admitted to make sure that the
hospitalization is needed. If you go to the hospital without this
approval, you may not be covered for the hospital bill.
Return to Contents
Types of Insurance
Fee-for-Service
This is the traditional kind of health care
policy. Insurance companies pay fees for the services provided to
the insured people covered by the policy. This type of health
insurance offers the most choices of doctors and hospitals. You can
choose any doctor you wish and change doctors any time. You can go
to any hospital in any part of the country.
With fee-for-service, the insurer only pays for
part of your doctor and hospital bills. This is what you pay:
 | A monthly fee, called a premium. |
| A certain amount of money each year, known as
the deductible, before the insurance payments begin. In a
typical plan, the deductible might be $250 for each person in
your family, with a family deductible of $500 when at least two
people in the family have reached the individual deductible. The
deductible requirement applies each year of the policy. Also,
not all health expenses you have count toward your deductible.
Only those covered by the policy do. You need to check the
insurance policy to find out which ones are covered.
|
| After you have paid your deductible amount
for the year, you share the bill with the insurance company. For
example, you might pay 20 percent while the insurer pays 80
percent. Your portion is called coinsurance. |
To receive payment for fee-for-service claims, you
may have to fill out forms and send them to your insurer. Sometimes
your doctor's office will do this for you. You also need to keep
receipts for drugs and other medical costs. You are responsible for
keeping track of your medical expenses.
There are limits as to how much an insurance
company will pay for your claim if both you and your spouse file for
it under two different group insurance plans. A coordination of
benefit clause usually limits benefits under two plans to no more
than 100 percent of the claim.
Most fee-for-service plans have a "cap," the most
you will have to pay for medical bills in any one year. You reach
the cap when your out-of-pocket expenses (for your deductible and
your coinsurance) total a certain amount. It may be as low as $1,000
or as high as $5,000. Then the insurance company pays the full
amount in excess of the cap for the items your policy says it will
cover. The cap does not include what you pay for your monthly
premium.
Some services are limited or not covered at all.
You need to check on preventive health care coverage such as
immunizations and well-child care.
There are two kinds of fee-for-service coverage:
basic and major medical. Basic protection pays toward the costs of a
hospital room and care while you are in the hospital. It covers some
hospital services and supplies, such as x-rays and prescribed
medicine. Basic coverage also pays toward the cost of surgery,
whether it is performed in or out of the hospital, and for some
doctor visits. Major medical insurance takes over where your basic
coverage leaves off. It covers the cost of long, high-cost illnesses
or injuries.
Some policies combine basic and major medical
coverage into one plan. This is sometimes called a "comprehensive
plan." Check your policy to make sure you have both kinds of
protection.
What Is a "Customary" Fee?
Most insurance plans will pay only what they call
a reasonable and customary fee for a particular service. If your
doctor charges $1,000 for a hernia repair while most doctors in your
area charge only $600, you will be billed for the $400 difference.
This is in addition to the deductible and coinsurance you would be
expected to pay. To avoid this additional cost, ask your doctor to
accept your insurance company's payment as full payment. Or shop
around to find a doctor who will. Otherwise you will have to pay the
rest yourself.
Questions to Ask About Fee-for-Service Insurance
| How much is the monthly premium? What will
your total cost be each year? There are individual rates and
family rates. |
| What does the policy cover? Does it cover
prescription drugs, out-of-hospital care, or home care? Are
there limits on the amount or the number of days the company
will pay for these services? The best plans cover a broad range
of services. |
| Are you currently being treated for a medical
condition that may not be covered under your new plan? Are there
limitations or a waiting period involved in the coverage?
|
| What is the deductible? Often, you can lower
your monthly health insurance premium by buying a
policy with a
higher yearly deductible amount. |
| What is the coinsurance rate? What percent of
your bills for allowable services will you have to pay? |
| What is the maximum you would pay out of
pocket per year? How much would it cost you directly before the
insurance company would pay everything else? |
| Is there a lifetime maximum cap the insurer
will pay? The cap is an amount after which the insurance company
won't pay anymore. This is important to know if you or someone
in your family has an illness that requires expensive
treatments. |
Health Maintenance Organizations (HMOs)
Health maintenance organizations are prepaid
health plans. As an HMO member, you pay a monthly premium. In
exchange, the HMO provides comprehensive care for you and your
family, including doctors' visits, hospital stays, emergency care,
surgery, lab tests, x-rays, and therapy.
The HMO arranges for this care either directly in
its own group practice and/or through doctors and other health care
professionals under contract. Usually, your choices of doctors and
hospitals are limited to those that have agreements with the HMO to
provide care. However, exceptions are made in emergencies or when
medically necessary.
There may be a small copayment for each office
visit, such as $5 for a doctor's visit or $25 for hospital emergency
room treatment. Your total medical costs will likely be lower and
more predictable in an HMO than with fee-for-service insurance.
Because HMOs receive a fixed fee for your covered
medical care, it is in their interest to make sure you get basic
health care for problems before they become serious. HMOs typically
provide preventive care, such as office visits, immunizations,
well-baby checkups, mammograms, and physicals. The range of services
covered vary in HMOs, so it is important to compare available plans.
Some services, such as outpatient mental health care, often are
provided only on a limited basis.
Many people like HMOs because they do not require
claim forms for office visits or hospital stays. Instead, members
present a card, like a credit card, at the doctor's office or
hospital. However, in an HMO you may have to wait longer for an
appointment than you would with a fee-for-service plan.
In some HMOs, doctors are salaried and they all
have offices in an HMO building at one or more locations in your
community as part of a prepaid group practice. In others,
independent groups of doctors contract with the HMO to take care of
patients. These are called individual practice associations (IPAs)
and they are made up of private physicians in private offices who
agree to care for HMO members. You select a doctor from a list of
participating physicians that make up the IPA network. If you are
thinking of switching into an IPA-type of HMO, ask your doctor if he
or she participates in the plan.
In almost all HMOs, you either are assigned or you
choose one doctor to serve as your primary care doctor. This doctor
monitors your health and provides most of your medical care,
referring you to specialists and other health care professionals as
needed. You usually cannot see a specialist without a referral from
your primary care doctor who is expected to manage the care you
receive. This is one way that HMOs can limit your choice.
Before choosing an HMO, it is a good idea to talk
to people you know who are enrolled in it. Ask them how they like
the services and care given.
Questions to Ask About an HMO
| Are there many doctors to choose from? Do you
select from a list of contract physicians or from the available
staff of a group practice? Which doctors are accepting new
patients? How hard is it to change doctors if you decide you
want someone else? How are referrals to specialists handled? |
| Is it easy to get appointments? How far in
advance must routine visits be scheduled? What arrangements does
the HMO have for handling emergency care? |
| Does the HMO offer the services I want? What
preventive services are provided? Are there limits on medical
tests, surgery, mental health care, home care, or other support
offered? What if you need a special service not provided by the
HMO? |
| What is the service area of the HMO? Where
are the facilities located in your community that serve HMO
members? How convenient to your home and workplace are the
doctors, hospitals, and emergency care centers that make up the
HMO network? What happens if you or a family member are out of
town and need medical treatment? |
| What will the HMO plan cost? What is the
yearly total for monthly fees? In addition, are there copayments
for office visits, emergency care, prescribed drugs, or other
services? How much? |
Preferred Provider Organizations (PPOs)
The preferred provider organization is a
combination of traditional fee-for-service and an HMO. Like an HMO,
there are a limited number of doctors and hospitals to choose from.
When you use those providers (sometimes called "preferred"
providers, other times called "network" providers), most of your
medical bills are covered.
When you go to doctors in the PPO, you present a
card and do not have to fill out forms. Usually there is a small
copayment for each visit. For some services, you may have to pay a
deductible and coinsurance.
As with an HMO, a PPO requires that you choose a
primary care doctor to monitor your health care. Most PPOs cover
preventive care. This usually includes visits to the doctor,
well-baby care, immunizations, and mammograms.
In a PPO, you can use doctors who are not part of
the plan and still receive some coverage. At these times, you will
pay a larger portion of the bill yourself (and also fill out the
claims forms). Some people like this option because even if their
doctor is not a part of the network, it means they don't have to
change doctors to join a PPO.
Questions to Ask About a PPO
| Are there many doctors to choose from? Who
are the doctors in the PPO network? Where are they located?
Which ones are accepting new patients? How are referrals to
specialists handled? |
| What hospitals are available through the PPO?
Where is the nearest hospital in the PPO network? What
arrangements does the PPO have for handling emergency care? |
| What services are covered? What preventive
services are offered? Are there limits on medical tests,
out-of-hospital care, mental health care, prescription drugs, or
other services that are important to you? |
| What will the PPO plan cost? How much is the
premium? Is there a per-visit cost for seeing PPO doctors or
other types of copayments for services? What is the difference
in cost between using doctors in the PPO network and those
outside it? What is the deductible and coinsurance rate for care
outside of the PPO? Is there a limit to the maximum you would
pay out of pocket? |
Return to Contents
Checklist: What's Most Important to You?
Insurance plans vary. Before choosing a plan,
decide what is most important to you. This checklist can help. Put a
check in front of those services that are important to you. Then see
how many of these services are in Policy #1, Policy #2, and Policy
#3. On the checklist, write in the coinsurance or copayment rate, if
there is one, and any limits on service.
Remember that the most important service to be
covered is hospitalization. If you are not covered for hospital
care, then one sickness could cost you thousands of dollars, even
hundreds of thousands of dollars.
Service Policy #1 Policy #2 Policy #3
-Hospital care
-Surgery (inpatient
and outpatient)
-Office visits to
your doctor
-Maternity care
-Well-baby care
-Immunizations
-Mammograms
-Medical tests,
x-rays
-Mental health care
-Dental care,
braces and cleaning
-Vision care,
eyeglasses and exams
-Prescription drugs
-Home health care
-Nursing home care
-Services you need
that are excluded
Other issues that are
important to you:
-Choice of doctors
-Convenient location of
doctors and hospitals
-Ease of getting
an appointment
-Minimal paperwork
-Waiting period before
coverage begins
Which policy is best for you?
Return to Contents
Worksheet: What Is Your Best Buy?
It is difficult to determine exactly what you will
spend a year on health care. You do not know whether you will be
sick 6 months from now and need an operation. Hopefully, you will
not.
Using this worksheet, you can begin to make some
rough estimates. Much will depend on what service you need or want,
how many people are in your family, your age, and other factors. Do
you need to have your eyes tested this year? Will you have a
mammogram or other cancer screening test? Does your child need
immunizations?
Look at your medical and insurance records from
last year as a guide to what services you might use this year. Add
up the actual costs to you, including premiums. Estimate what you
might spend on your health care in terms of deductibles, coinsurance
and/or copayments, and services that are not covered.
Compare Policy #1, Policy #2, and Policy #3 to
determine which is the best buy for you.
What is your monthly premium? Policy #1 Policy #2 Policy #3
Individual:
Family:
Multiply by 12 for annual cost:
What is your deductible?
(if there is one)
Individual:
Family:
What is your coinsurance rate
or copayment, if there is one?
(Note if there is a higher rate
for special services, such as
outpatient mental health care.)
Are there any annual limits for
days or services covered and
the amount spent on you?
What is the maximum you will have
to pay out-of-pocket each year?
What is the lifetime limit,
if any,that you will be
reimbursed?
Total estimated yearly cost
to you:
Now look at the checklist of services that are
important to you. Is your best buy
the same policy that gives you the most services you need?
Return to Contents
Other Types of Insurance
Medicare
Medicare is the Federal health insurance program
for Americans age 65 and older and for certain disabled Americans.
If you are eligible for Social Security or Railroad Retirement
benefits and are age 65, you and your spouse automatically qualify
for Medicare.
Medicare has two parts: hospital insurance, known
as Part A, and supplementary medical insurance, known as Part B,
which provides payments for doctors and related services and
supplies ordered by the doctor. If you are eligible for Medicare,
Part A is free, but you must pay a premium for Part B.
Medicare will pay for many of your health care
expenses, but not all of them. In particular, Medicare does not
cover most nursing home care, long-term care services in the home,
or prescription drugs. There are also special rules on when Medicare
pays your bills that apply if you have employer group health
insurance coverage through your own job or the employment of a
spouse.
Medicare usually operates on a fee-for-service
basis. HMOs and similar forms of prepaid health care plans are now
available to Medicare enrollees in some locations.
The best source of information on the Medicare
program is the handbook, Medicare & You. This booklet
explains how the Medicare program works and what your benefits are.
To order a free copy, phone the Centers for Medicare & Medicaid
Services (CMS) at 1-800-MEDICARE or go to the CMS Web site at
http://www.medicare.gov/Publications/home.asp. You also can
contact your local Social Security office for information.
Some people who are covered by Medicare buy
private insurance, called "Medigap" policies, to pay the medical
bills that Medicare doesn't cover. Some Medigap policies cover
Medicare's deductibles; most pay the coinsurance amount. Some also
pay for health services not covered by Medicare. There are 10
standard plans from which you can choose. (Some States may have
fewer than 10.) If you buy a Medigap policy, make sure you do not
purchase more than one.
You need to shop carefully before deciding on the
best policy to fit your needs. You may get another booklet,
Guide to Health Insurance for People with Medicare, to help you
in making the right choice. To order a free copy, phone the Centers
for Medicare & Medicaid Services (CMS) at 1-800-MEDICARE or go to
the CMS Web site at
http://www.medicare.gov/Publications/home.asp.
Medicaid
Medicaid provides health care coverage for some
low-income people who cannot afford it. This includes people who are
eligible because they are aged, blind, or disabled or certain people
in families with dependent children. Medicaid is a Federal program
that is operated by the States, and each State decides who is
eligible and the scope of health services offered.
For more information on the Medicaid program, go
to the Centers for Medicare & Medicaid Services (CMS) Web site at
http://www.cms.hhs.gov/MedicaidGenInfo/. For specifics on
Medicaid eligibility and the health services offered, contact your
State Medicaid Program Office.
Disability Insurance
Disability insurance replaces income you lose if
you have a long-term illness or injury and cannot work. This is an
important type of coverage for working-age people to consider.
Disability insurance does not cover the cost of rehabilitation if
you are injured. Check your major medical insurance to see if it is
covered there.
Some employers offer group disability insurance
and this may be one of the benefits where you work. Or you might be
eligible for some government-sponsored programs that provide
disability benefits. Many different kinds of individual policies are
also available.
The Guide to Disability Income Insurance
explains disability insurance and sources of disability income to
help you decide if you need this coverage. It will also help you
compare your choices of policies. To download a copy online, go to
the America's Health Insurance Plans's Web site at http://www.ahip.org/content/default.aspx?bc=41|329
Hospital Indemnity Insurance
This insurance offers limited coverage. It pays a
fixed amount for each day, up to a maximum number of days. You may
use it for medical or other expenses. Usually, the amount you
receive will be less than the cost of a hospital stay.
Some hospital indemnity policies will pay the
specified daily amount even if you have other health insurance.
Others may coordinate benefits, so that the money you receive does
not equal more than 100 percent of the hospital bill.
Long-term Care Insurance
Long-term care insurance is designed to cover the
costs of nursing home care, which can be several thousand dollars
each month. Long-term care is usually not covered by health
insurance except in a very limited way. Medicare covers very few
long-term care expenses. There are many plans and they vary in costs
and services covered, each with its own limits.
More detailed information is given in A
Shopper's Guide to Long-Term Care Insurance. Contact your State
Insurance Department or write: National Association of Insurance
Commissioners, 120 W. 12th Street, Suite 1100, Kansas City, MO
64105.
Another good source of information is The
Guide to Long-Term Care Insurance. To download a copy online,
go to the America's Health Insurance Plans's Web site at http://www.ahip.org/
Return to Contents
A Final Word
There's no doubt that choosing among health
insurance plans takes time and effort. Now that you have read this
information, you know what questions to ask so you will be able to
carefully compare various plans and find the one that best fits your
needs.
Return to Contents
Understanding Health Insurance Terms
Coinsurance:
The amount you are required to pay for medical care in a
fee-for-service plan after you have met your deductible. The
coinsurance rate is usually expressed as a percentage. For example,
if the insurance company pays 80 percent of the claim, you pay 20
percent.
Coordination of Benefits:
A system to eliminate duplication of benefits when
you are covered under more than one group plan. Benefits under the
two plans usually are limited to no more than 100 percent of the
claim.
Copayment:
Another way of sharing medical costs. You pay a flat fee every time
you receive a medical service (for example, $5 for every visit to
the doctor). The insurance company pays the rest.
Covered Expenses:
Most insurance plans, whether they are fee-for-service, HMOs, or
PPOs, do not pay for all services. Some may not pay for prescription
drugs. Others may not pay for mental health care. Covered services
are those medical procedures the insurer agrees to pay for. They are
listed in the policy.
Deductible:
The amount of money you must pay each year to cover your medical
care expenses before your insurance policy starts paying.
Exclusions:
Specific conditions or circumstances for which the policy will not
provide benefits.
HMO (Health Maintenance Organization):
Prepaid health plans. You pay a monthly premium and the HMO covers
your doctors' visits, hospital stays, emergency care, surgery,
checkups, lab tests, x-rays, and therapy. You must use the doctors
and hospitals designated by the HMO.
Managed Care:
Ways to manage costs, use, and quality of the health care system.
All HMOs and PPOs, and many fee-for-service plans, have managed
care.
Maximum Out-of-Pocket:
The most money you will be required pay a year for deductibles and
coinsurance. It is a stated dollar amount set by the insurance
company, in addition to regular premiums.
Noncancelable Policy:
A policy that guarantees you can receive insurance, as long as you
pay the premium. It is also called a guaranteed renewable policy.
PPO (Preferred Provider Organization):
A combination of traditional fee-for-service and an HMO. When you
use the doctors and hospitals that are part of the PPO, you can have
a larger part of your medical bills covered. You can use other
doctors, but at a higher cost.
Preexisting Condition:
A health problem that existed before the date your insurance became
effective.
Premium:
The amount you or your employer pays in exchange for insurance
coverage.
Primary Care Doctor:
Usually your first contact for health care. This is often a family
physician or internist, but some women use their gynecologist. A
primary care doctor monitors your health and diagnoses and treats
minor health problems, and refers you to specialists if another
level of care is needed.
Provider:
Any person (doctor, nurse, dentist) or institution (hospital or
clinic) that provides medical care.
Third-Party Payer:
Any payer for health care services other than you. This can be an
insurance company, an HMO, a PPO, or the Federal Government.
Additional Resources
For more current information on health insurance
and health plan choice, select
Choosing and
Using a Health Plan .
Return to Contents
AHCPR Publication No. 93-0018
Current as of December 1992
