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Health Insurance Basics and Overview

Highlights

  • Take advantage of health coverage offered by your employer, if it is available.
  • Consider whether a managed care plan or a fee-for-service plan is best for you.
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Types of Health Insurance

Health insurance is coverage everyone should have.  Health insurance helps you limit your costs for doctors visits, prescriptions, and preventive, emergency, or therapeutic care. All health insurance plans require a monthly premium payment. In addition to your premium costs, you will have other costs,  such as co-payments, co-insurance, and deductibles. What kind of coverage you get for the money you spend, depends on how your medical care is delivered and the level of services that you choose to include in your policy.

Group Insurance or Individual Insurance

A first step is to decide if you will take out an individual or a group health policy. Group insurance is only an option for you, if you are a member of a group that offers a group health policy. Common groups that offer  insurance are employers, unions, and trade associations. The most common form of group insurance in the US is insurance offered by an employer. 

If you are not a member of an eligible group, your only choice is to seek individual insurance. Individual or family insurance is insurance that you purchase independently and are personally responsible for sending in the monthly premium payment. Individual insurance can be purchased for a single person or a family.

A group policy makes great sense, if you have any pre-existing conditions. You are not judged for eligibility based on your health. The primary disadvantage of a group insurance policy is that your insurance coverage can end if you are no longer part of the group. If you leave your job or lose your job, your employer based coverage will end.

Advantages of individual insurance include: lower costs if you are healthy and young, portability, and the ability to tailor a policy that fits your specific needs.  The main disadvantage of applying for an individual health insurance policy is that you can be turned down because of your health, due to the individual risk-assessment that the insurance provider makes. Higher risk will mean higher cost; you don’t want an individual policy if you are high-risk and a group policy is available.

Managed Care or Indemnity Insurance

You also must decide what kind of health care provider you want. 

An indemnity plan is also called a fee-for service plan. Indemnity plans give you freedom to choose your doctors, allowing you to receive treatment where and from whom you choose. The size of your deductible and the amount of your co-insurance will vary from insurance company to insurance company and within insurance companies according to the level of coverage you purchase. Indemnity plans are likely to require you to pay out-of-pocket for the services you receive. Some doctors require you to pay 100% of  the fee up-front. You get the care and then are  responsible for filing a claim with your insurance company, in order to be reimbursed. If the treatment you received was covered by the terms of your policy, then you will be reimbursed, after the insurance company accounts for your co-insurance and deductibles.

Managed-care plans aim to offer comprehensive health care to its members through a network of health care providers. Members are offered financial incentives to use services offered within the network. In a managed care plan, the paperwork is generally taken care of by the health care provider instead of you, the policy holder.  Your medical care is usually covered with only a low percentage co-insurance or co-payment, an amount that is set by the terms of your policy. A trade-off of managed care plans, compared to indemnity plans, is lower costs in exchange for limited services. Because the network of providers has, in most cases, agreed to provide the treatment at a pre-set price, your care will cost less you less than in an indemnity plan.

There are two main types of managed-care plans: HMOs (Health Maintenance Organizations) and PPOs, (Preferred Provider Organizations). Both HMOs and PPOs have networks of care providers. An HMO requires you to choose a primary care physician (PCP). All your treatments are based on a consultation with your PCP, who then refers you to network specialists as your care demands. A PPO does not require you to seek referrals from a PCP; you can see whomever you want. If you wish to see a physician outside the PPO network, your costs will likely be higher. The PPO may reimburse you for a percentage of your costs, but is not obliged to do so at the same rate that it covers your in-network care. Additionally, you will be responsible for filling out and submitting paperwork when seeing a non-network care provider.

Make sure to think about you and your family's specific medical needs, before choosing a health insurance policy.

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