When shopping for health insurance, the number of options can be daunting and it can be difficult to understand the differences between your choices. Many people don’t have a choice about their healthcare plans because they must accept whatever plan is offered by their employers. But for those who need to choose their own health insurance, it’s important to understand how the different plans are structured.

Traditional Indemnity vs. Managed Care

The first health insurance plans were indemnity plans, also called “major medical coverage.” With indemnity coverage, patients could choose their own doctors and specialists, and could see specialists without referrals from primary physicians. Normally, patients pay an annual deductible, which is the amount you have to pay out of pocket before insurance starts paying a share of any medical expenses. A standard deductible may be anywhere from $200 to $5,000, and must be determined when signing up for the plan. With a $2,500 deductible, for instance, the patient must pay the first $2,500 of the year’s medical bills out of pocket, and after that point the insurance company will begin paying a portion of the bills. The remaining portion, paid by the insured, is called a “co-payment” or “co-pay.” If you choose higher deductible and co-pay amounts, you will automatically get a lower monthly premium rate. With a traditional indemnity plan, you pay cash for services and then submit a reimbursement request to your insurance company, which usually pays around 80% of everything after the deductible has been paid. Traditional indemnity plans did not cover preventative care, but as advances in medicine have demonstrated the long-term savings associated with preventative care, some indemnity insurance companies are beginning to offer benefits for routine doctor visits.

Managed care plans are a more modern form of health insurance. With managed care plans, a network of healthcare providers is included in the plan and you have access to these providers at discounted rates. In some cases, you can only see network physicians. There are different types of managed care plans, and each has a different procedure for choosing doctors and being referred to specialists.

There are 3 types of managed care plans:

• Preferred Provider Organization (PPO): With a PPO, you can see any doctor included in the preferred provider network for a lower co-pay. You can also refer yourself to an in-network specialist and still be eligible for benefits.
• Health Maintenance Organization (HMO): With an HMO, patients can only see network physicians. If they see a doctor outside of the network, insurance may not pay any portion of the costs. HMOs may also require patients to choose a primary care physician (PCP), who can then refer them to specialists within the plan. If you are referred to an out-of-network specialist, the cost may not be covered, or you may have to pay a higher co-pay.
• Point-of-Service (POS): With a POS plan, you must choose a PCP and you can only be referred to specialists by the PCP. You may only see doctors within the network in order for your costs to be covered.

Deductible and Co-payments

When you are comparing healthcare plans, you will have to select a deductible amount. This is the amount you’ll have to pay off the top of the year’s medical expenses before your insurance will start paying a portion of your bills. Choosing a higher deductible will result in lower premiums. The most expensive health insurance plans have no deductible. With most companies, the maximum deductible is $5,000. A good rule for figuring out the best deal for premiums vs. deductibles is to ask the insurance company to list your rates for several different deductibles. Add up the total cost of your premiums for the year under each deductible option and measure whether the increased premiums you pay for a lower deductible add up to more than the additional deductible amount. For example, if it costs you $200 more per month (for a total of $2,400 more for the year) to decrease your deductible by $1,000, then you would save $1,400 for the year by opting for the higher deductible.

Co-payments are the amount of each medical bill you have to pay yourself. Co-pays can be expressed in percentages of the total bill or in exact dollar amounts. Typical co-pay amounts for doctor visits include both a dollar amount (around $10 or $20) for the visit and then a portion of the treatment costs, usually around around 20%, so the insurance company pays 80%. Health plans with prescription coverage usually have 3 tiers of co-payment options, depending on the cost of the prescription, and use exact dollar amounts like “$10/$20/$30.”

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