The ABCs of Health Insurance

The ABCs of Health Insurance

JM Bauer asked:


In the health insurance market, the three main types of health care coverage are available. They are the compensation plan, the Preferred Provider Organization (PPO) and Health Maintenance Organization (HMO). Each approach offers consumers the opportunity to choose between flexibility and control of health care in their choice over the care of their medical care. Almost everywhere, the plans for health care that offer more flexibility and control of consumers are also more expensive, while plans for the insurance company to control the choice of health care are generally more affordable. Let us examine each of these plans.

The plan of approach is the compensation of health care as proposed in the days before managed care. In a compensation plan, the insured is free to go to any doctor, specialist, hospital or laboratory to the medical care they feel they need. These health care services are billed to the insurance company to the individual rates set by the health care provider. The insurance company pays a fixed percentage of the fee (usually 80%) and the consumer pays the remaining percentage (usually 20%) of the bill for medical expenses. Each health care provider is free to set their fees at a level of their choice and the consumer has little incentive to consider all the medical expenses. Although the compensation plans are still available today, they are not widely used because they are too expensive for the average consumer. The monthly premium for a plan of compensation is generally 50% to 100% more than the premium for an HMO or PPO plan.

On the other end of the spectrum, Health Maintenance Organizations or HMOs were introduced by insurance companies as a way to fight against rising health care costs faced by employers providing health benefits to their employees. In an HMO, the insured chooses or is assigned to a provider of primary health care (PCP), as a family doctor, internist or pediatrician. The PCP is responsible for coordinating all health care services provided to the police (except emergency care). The insured can not see a specialist, service or control laboratory in a hospital if they are referred for services by the CFP. All services not covered by the consumer of the CFP are not reimbursable under the health insurance policy. In the HMO network, health care providers agree with the insurance company traded on the rates for specific services. Once approved, these health care providers are part of the network available to the PCP patient referral when additional care is needed. On the basis of the insurance company of the strict control of the use of health care and the rates they charge, an HMO is usually the least costly for a health care plan.

In the center, between the wide open and Indemnity strictly controlled HMOs, insurance companies also offer a third option called Preferred Provider Organization or PPO. In a PPO plan, an insured is free to go almost all the health care of their choice, including doctors, specialists, laboratories and hospitals, and generally without medical referral. However, the amount reimbursed by the insurance company for the delivery of medical services may vary according to the provider of health care is negotiated within their network or not. As with an HMO, the insurance company in advance of negotiating fees with health care providers and approve their inclusion in the plan's preferred provider network. Services provided by health care network providers are generally reimbursed for consumption to high rates of 70% or more. On the other hand, when the consumer uses a non-network health care provider, reimbursement will be much lower, ranging from 0% to 50% of medical expenses incurred. Given that the vast majority of policyholders use PPO network providers to reduce their payments of expenditure, the OPP are very profitable for insurance companies. Accordingly, PPOs are a little more expensive than HMOs, but are still very reasonably priced for the average person.