Health insurance is a type of insurance coverage that covers the cost of an insured individual's medical expenses, such as doctors visits, medicines, surgical expenses, and so on. Depending on the type of health insurance coverage, the insured makes payments to their health provider or pays costs out-of-pocket and is then reimbursed. In health insurance terminology, the "provider" is a clinic, doctor, hospital, health care practitioner, or pharmacy. The "insured" is the person with the health insurance coverage and usually the owner of the health insurance policy.
Understanding the differences between different kinds of plans is useful and extremely important when you are considering choosing one for yourself, your family, or employees. There are five main kinds of health insurance plans:
1) Indemnity Plans – allow you to manage your own health care and visit almost any doctor or hospital you’d like. The insurance company then pays you a set portion of the total charges. These plans are also referred to as "fee-for-service" plans.
2) HMOs (Health Maintenance Organization) – HMOs are developed to deliver care directly to the insured; A set premium is paid, which in return offers a range of services, including preventive care. The insured will also have to make a co-payment for some services. This is usually the most cost effective type of health insurance.
3) POS (Point-of-Service Plans) – POS plans are a hybrid of an HMO and a PPO. The insured can chose one of 2 options: visit a general practitioner and coordinate health care, or go directly to the "point-of-service". When the insured requires medical care, there are usually two or three different choices, and they depend on what type of POS Plan is in place. If they choose a primary care physician, the insured is required to make a copayment. The insured can receive care form a PPO provider within the network. The insured will also have to may a copayment and may be liable for coinsurance. Coinsurance is when the insurance company pays 80% of the bill and the insured pays the remaining 20%. The insured can also receive services from non-network providers, but this requires a copayment and a higher coinsurance charge.
4) PPOs (Preferred Provider Organizations) – With a PPO the insured can see any doctor on any network. The PPO gets together with health care providers and health professionals and will negotiates prices. When the insured visits a doctor in the PPO network, they pay a co-payment for services. Premiums are low for PPO’s but deductibles are higher than other plans.
5) HSA (Health Savings Account) – HAS is a combination of HMO/PPO/Indemnity and a savings account which has tax-benefits for policy holders. Insurers put money in a ‘health account’ and that money is used for medical and health related purposes to make payments and such. This is recommended for healthy, young individuals that do not see a doctor regularly.
Copayment - in most cases, the insured will also have to make a copayment for some services. Some HMOs may not require copayments for hospital stays.
Deductibles - the amount of covered expenses the insured has to pay before the insurance company pays or covers medical costs. Deductibles are different for all policies and totals may range from $100 to $300 per person annually, or from $500 to $1,000 annually for a whole family.
Out-of-pocket maximum - as soon as the insured's expenses reach a certain amount during a 12-month period, the plan will cover everything thereafter. Remember that any charges above what are considered as usual and customary by the insurance company will have to be paid for by the insured.
Lifetime limit - if the insured has a lifetime limit of $1 million, it means the insurance company will only cover costs up to $1 million during that person's lifetime. Ideally, one should have a lifetime limit of at least $ 2 million.
Coinsurance - is when the insurance company pays a portion of the bill and the insured pays the remaining portion.