Different Types of Coverage: Health Insurance

Health insurance is important to have. Although there are different types of coverage available, it doesn't mean that certain types are better than others. It actually depends on each individual or family's preferences. Health insurance plans generally fall under either the traditional category or managed care.

Traditional Indemnity Coverage

This type of coverage, also known as "fee-for-service," used to be the most commonly used insurance. Those with this type of plan pay a deductible for medical expenses then the insurance pays the remaining balance, which is usually majority of the bill.

The benefits of this type of plan is that it gives patients more choices for their care, such as doctors, hospitals, and specialists. The drawbacks include higher premiums and greater out-of-pocket expenses and often you still need to get clearance to visit the emergency room. Some of these plans only pay for "reasonable and customary" expenses, so if the provider you've selected charges more than the average for your area, you may have to pay the difference. Some of these plans don't cover preventative care either.

Managed care

The majority of people with private health insurance have one of these three types of managed care plans. There are significant differences between the three even though they are very similar. All three types involve arrangements between the network of health care providers and insurer, as well as discounts for using providers within the selected network.

1. Preferred Provider Organizations, or PPOs, allow you to choose your provider as well as refer to a specialist without prior approval. They provide financial incentives, such as low co-pay and no upfront costs, for staying within the network. If you choose a provider outside the network, generally you must pay the provider's fee in full out-of-pocket and the insurance company will reimburse you around 80-percent.

2. Point-of-Service, or POS, plans require you to choose a primary care physician (PCP) from the plan's selected network. You can still choose non-network providers as if you had a PPO; however, if you need a specialist referral you must go through your PCP. Sometimes you may refer yourself but will generally have to pay most of the cost of service. POS plans cover more preventative care services than PPOs.

3. Health Maintenance Organizations (HMOs) are the least expensive type of plan, but they are also inflexible and mostly suit groups. In exchange for low/no co-payments, low premiums and little, if any, paperwork, an HMO requires that you visit their doctors and get approval from your PCP before seeing a specialist. You also generally need approval to visit emergency rooms.