Managed Health Care vs. Indemnity Insurance

Highlights

  • Understand that the type of insurance you choose affects your costs and level of service.
  • Indemnity plans offer you greater freedom of choice.
  • Managed care plans may offer you more affordable comprehensive care.
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Compare Managed Health Care Plans with Indemnity Plans

There are many health care plans to choose from.  Some plans give you limited choice in selecting your care. Other plans leave you free to choose where you seek treatment and who your doctor will be. You want to choose a plan that offers you the best level of service for the best price. To determine what plan meets this goal, you need to think about what kind of care is important to you.

Main Components of Health Plans

Your costs and the kind of care you will receive will vary, depending on what your policy says about each of the areas below:

1.      Choosing a Physician - Some plans give you full freedom to select any doctor or treatment facility you wish. Other plans require you to select your care providers and treatment centers from a network roster. Some plans  that are part of a network cover part of your costs for care that takes place outside of the network. Other network plans do not cover any non-network care. You may have to fill out paperwork for care sought outside the network that is not required for care within your network.

2.      Payments - Different  health insurance coverage requires different kinds of payment from you. All insurance plans demand that you pay a  monthly insurance premium. Outside of your premium costs, you will have to bear other costs. .

      Payment issues you need to be aware of are:

  • Co-payment - A co-payment is a payment you make each time you access your medical care. If your plan offers different levels of co-payments, depending on the coverage you choose, the smaller your co-payment, the higher your premium costs will be.
  • Co-insurance - Co-insurance is the portion you pay for your medical care that is not paid by your insurance company. Co-insurance is usually set as a percentage of your medical fee, with the percentage defined in your policy. For example, you could have a co-insurance responsibility of 20%, meaning that you pay 20% of the cost of the treatment and the insurance covers the remaining 80%.  The smaller your share of co-insurance, the higher your premium costs.
  • Deductible -  Your deductible is the amount you pay for your health care, before your insurance company benefits pay the remaining costs. Deductibles are usually calculated on an annual basis.  The lower your deductible, the higher your premium costs.
  • Annual caps - Your insurance may limit you to a certain dollar cap for certain care for each calendar year. Once you exceed the cap, you pay for all treatment costs out-of-pocket. The smaller your annual caps, the more you will pay for your coverage.

3.      Level of service - Your medical needs may include regular check-ups, prescription care, mental health care, emergency care, and hospitalization. Different plans offer different benefits for these services. Your costs will vary according to your plan. Some plans cover types of  medical procedures that other plans exclude.  If you choose a plan with a wider range of services covered, your policy premiums will be higher. Also, choosing a plan that protects you from higher out-of-pocket charges for different services will come with a higher premium.

There are two basic divisions of health care insurance: indemnity/fee-for-service insurance and managed care plan insurance.

Indemnity Health Insurance

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. 

One risk of indemnity insurance is that your claim for reimbursement can be denied. Fighting with an insurance company over a claim is no fun. Because you paid up front, you have less leverage. If you have indemnity insurance, it is prudent to check with your insurance provider before you seek treatment, to clarify your level of coverage.

One kind of indemnity insurance is catastrophic health insurance. You may want to have insurance only to protect you from potential major costs of hospitalization or intensive treatments.  This insurance does not cover basic health care or preventative care, but is vitally important if you have assets to protect. If you have assets, even if you have no other insurance, you should have catastrophic care insurance.

Managed Care Health Plans

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.

A Point of Service (POS) plan is a hybrid of a PPO and HMO. In a POS you select a PCP who monitors your care and refers you to physicians inside and outside of the network. You will pay more for  out of network care and will be responsible for submitting paperwork to have your insurance claims processed and to be reimbursed.

In a managed care plan, you do not face the risk of paying for a service and then being denied coverage. The risk you face is that the coverage can be denied up-front. With a managed care plan, your level of care is not determined only by your doctor, but by the plan's bureaucracy.

Summary

No one kind of plan is right for everyone. You may wonder how you are supposed to choose the best plan for you and your family, with so many complex factors to weigh. Here are a few guidelines:

  1. If you are you and in good health and expect to seek health care on a limited basis, choose a plan with a low premium. Be less concerned about the level of service, the size of the deductible, and the amount of your co-payments. The purpose of insurance for you, if you are  young and in good health, is to protect yourself from potentially high costs in case of emergency, accident, or hospitalization. You may want to consider catastrophic care insurance.
  2. If you know that you are going to need regular care, to monitor ongoing medical conditions and to cover monthly prescriptions, you should consider paying a higher premium in order to get the coverage with smaller co-payments, co-insurance, and deductibles.
  3. If you have a need for more specialized care, the flexibility of indemnity care may benefit you.
  4. If you move frequently, it makes more sense to look at indemnity insurance, so you can don’t need to sign-up with a new provider each time you move. Indemnity insurance also prevents you being turned down for insurance coverage, which could happen if you need new coverage and you developed some condition which would make finding new insurance difficult, expensive, or impossible.
  5. A managed care patient must overcome the managed care plan's  built-in incentive to under-test and under-treat. A fee-for-service patient must resist the physician's incentive to over-test and over-treat.

 Making a smart choice requires thorough study of the various health insurance plans available. Consider the needs of every person who will be covered by your plan should. With careful consideration and planning, you increase your chances of finding the right health insurance.

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