Health insurance can traditionally be broken down in to two broad categories: Traditional and Managed care. Within those categories, there are four basic types of plans:
Traditional indemnity plans, which are now often called fee-for-service plans;
- PPO, or Preferred Provider Organizations;
- POS, or Point-Of-Service plans;
- HMOs, or Health Maintenance Organizations.
There is no one size fits all healthcare plan, and they each have their benefits and drawbacks. It all depends on your particular needs and preferences. Some people may enjoy the autonomy offered by fee-for-service plans, while others prefer the low costs associated with closed-panel Health Maintenance Organizations. Also, as health insurers compete for business, among new government regulation, distinctions between the types of plans have become increasingly blurred.
Traditional Health Insurance
Up until the 1990s, most people had traditional indemnity coverage. Today, this is known as, “fee-for-service” health care. Indemnity plans are a bit like auto insurance: you pay a certain amount of your medical expenses up front in the form of a deductible, and the insurance company pays the majority of the rest of your bill.
Modern medicine has both increased the cost of healthcare and life expectancy. As a result, insurance companies have tried to optimize their plans and business in order to reduce costs and give better care for their patients in an ever changing landscape of healthcare.
As mentioned above, indemnity or fee-for-service coverage was the gold standard for health insurance for most of the 20th century. Under this type of health coverage, you have complete control when it comes to choosing doctors, hospitals and other health care providers. You can refer yourself to any specialist without permission from your insurance provider, and the insurance company doesn’t get to decide which visit is “necessary.” However, you don’t have complete autonomy. Most fee-for-service medicine is regulated to an extent. For example, if you’re not at serious risk of death or incapacitated, you may need to get clearance for a visit to the emergency room.
Additionally, fee-for-service plans usually involve plenty of out-of-pocket expenses. There is a deductible, structured around your historical medical spending, you must reach before the insurance company starts paying. Once you’ve hit the deductible, the insurer will pay fro about 80 percent of any medical expenses. This will either come in the form of up front payment or reimbursement.
Under fee-for-service plans, insurers will usually only pay for reasonable and customary medical expenses. Insurers will look at what other practitioners in the area charge for similar services to find what they deem as acceptable. If your doctor happens to charge more than what the insurance company considers “reasonable and customary,” you’ll most likely have to make up the difference on your own or change doctors. In addition, preventive care services like annual check-ups aren’t covered under fee-for-service plans. However, as these are becoming increasingly essential for longevity, some insurers are now covering them.
As a safety net of sorts, fee-for-service plans often include a ceiling for out-of-pocket expenses, after which the insurance company will pay 100 percent of any costs. This is usually pretty high, but can save you in a very tough situation.
Impact of Affordable Care Act
All health insurance plans in the United States compliant with the Affordable Care Act (the law commonly referred to as Obamacare) are major medical health insurance plans. Different types of major medical health insurance include:
- Obamacare health insurance plans for individuals and families
- Employer-based health insurance plan
- Qualified Health Plans (these are Obamacare plans that can be purchased with a subsidy)
- Catastrophic Plans (primarily available to people under age 30)
- Government-sponsored health insurance coverage (Medicare, Medicaid, etc.)
Other types of health insurance products that do not qualify as major medical health insurance include:
- Short-Term Health Insurance
- Gap Insurance (Accident, Critical Illness, Telemedicine, etc)
Most Americans get private health insurance from their employer or union. Others get it from the government through Medicaid or Medicare. The rest typically buy their own health plan through a government-run health insurance marketplace, a private online health insurance marketplace or through a local broker or agent. Obamacare requires everyone to have a major medical health insurance policy or pay a tax penalty for being uninsured.
Let’s take a deeper look at your options.