What are the Different Types of Health Insurance?
Health insurance can be confusing, so it’s easier to grasp if you take it step-by-step. First, you need to know the basic types of health insurance coverage available, which can be broken down into two categories: traditional and managed care. Within those two categories are four types of plans:
Traditional
Indemnity Plans or Fee for Service
Until 30 years ago, traditional indemnity health insurance was virtually the only option available to the average consumer. This form of health insurance is based on your paying a specified deductible. After that, the insurance company pays the majority of your medical bills, usually 80 percent of what they consider "reasonable and customary" charges. This plan type also allows you to choose your doctors and other health care services, and you don’t need permission for most services.
Managed Care
Preferred Provider Organizations (PPOs)
PPOs are comprised of networks of health care providers. To keep costs down, you’re given financial incentive to stay within that network. For example, if you see a network doctor, it might only cost you $10, which is called a co-payment. If you have PPO coverage and you elect to see a doctor outside the network, you would have to pay the full amount and then submit the bill to the insurance company to have them reimburse you for 80 percent or whatever percentage your company uses as a reimbursement rate.
Point of Service (POS)
POS plans are similar to PPOs but they require that you choose a primary care physician from among the plan's network of doctors. As with a PPO, you can go out of the network and still be covered. But if you need a referral to a specialist, you usually must go through your primary care physician. You can also choose the specialist yourself but it will cost you more. If your primary care physician refers you to a doctor outside of the network, however, the plan would pick up most of the cost.
Health Maintenance Organizations (HMOs)
HMOs are the least flexible of all types of health insurance coverage, but they’re also the most affordable. In exchange for seeing only HMO doctors and getting a referral from your primary care physician before seeing specialist, you will pay either a low co-payment or no payment at all, have low premiums and minimal paperwork.
The plan that’s best for you depends on a variety of factors, including how often you use medical services, your budget, whether you have particular doctors you like to use and other preferences. Also, insurance providers update their coverage occasionally to compete with other providers’ health insurance rates, so the lines between the four types of health insurance coverage can sometimes blur. The descriptions above should give you a fundamental understanding of the categories though. Any variations can be explained by individual providers.