What Is Health Insurance?

Health insurance is basically a safety net to make sure you can pay doctor and hospital bills when you get sick or injured. There are many different types of health plans available to consumers today.

Who Provides Health Insurance?

There are two main sources of health insurance plans: the government and commercial companies.

The government is a provider of Medicare and Medicaid insurance programs. Medicare covers people 65 years and older, and for those with disabilities. Medicaid is coverage for low-income individuals and families who meet certain eligibility requirements.

Non-government, or commercial, insurance companies also provide coverage, usually through employers or directly to the individual.

What Are The Different Types Of Health Insurance?

There are different types of health plans, but they can be broken down into two main classes: Fee-For-Service and Managed Care.

Fee-For-Service plans are also called traditional health insurance. Under these plans you typically pay for health services directly and are then reimbursed by the insurance provider for part or all of that cost.

Under Managed Care plans, a group of doctors and hospitals agree to work with an insurance plan at lower rate, negotiated by the managed care organization. The health plan will pay these 'In-Network' doctors and hospitals directly for the majority of the cost of the health care services.

Types of managed care plan models include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and Point-of-Service plans (POSs).

Basic Health Insurance Terms

Here are some common health insurance terms you should know:

  • Premium. This is a monthly fee for your insurance coverage. The amount you pay per month will depend on the amount of coverage you have. In some cases, part or the entire premium is paid by your employer.
  • Out-Of-Pocket Expenses. This is the money you pay directly to a health care provider for medical services you receive.
  • Co-pay. This is a flat fee that you generally pay at the doctor's office or pharmacy, usually ranging from $5 to $50.
  • Co-insurance. This is usually a percentage split between you and the insurance plan to share the cost of certain medical services. This split can range from 50/50 percent up to 90/10 percent, meaning they pay for 90 percent of the service and you pay for remaining 10 percent.
  • Referral. This is a grant of permission from one doctor for you to receive additional health care services from another doctor or hospital. Some insurance plans will require a referral to see a specialist.
  • Catastrophic Coverage. This basically covers emergency care and some level of hospital overnight stays. These are generally less expensive than more comprehensive plans that include coverage for services like preventive care.

Shopping For Health Insurance

Fee-For-Service Plans

Fee for service plans are the most flexible. These are usually the most expensive because you're paying for that flexibility. These plans rely on you to keep track of your expenses and submit claim forms for doctors' visits and prescription medications.

Generally, when you have a fee-for-service plan, you can see any doctor at any time. This means you won't need a referral to see a specialist. There are no co-pays but you will pay a premium, coinsurance and a deductible. There is usually a limit to what your out of pocket costs will be in a given year.

Managed Care Plans

The first type of Managed Care plan is a Health Maintenance Organization, or HMO. These usually cost less than fee for service plans, but don't have as much flexibility in choosing doctors. Often these plans have a greater focus on prevention to lower long term health care costs. That means services like annual checkups, vaccinations and mammograms are usually encouraged.

These plans cost less because the HMO has established a network of doctors who provide services at reduced costs. This network will provide all your health services, which consist of certain hospitals, primary care doctors, and specialists.

You will have to choose a primary care physician who is part of that network.

If you need to see a specialist, you'll need a referral from your primary care physician, who will also get approval from the HMO. You may need to make an appointment with your primary care doctor to get the referral.

You will have to pay monthly premiums and co-payments for doctors' visits and prescriptions. Since almost all of the services you will receive under an HMO plan are provided by its doctors, you probably won't have to fill out forms for office visits and hospital stays.

The next two plans combine features of the Fee for Service and HMO plans.

The first is called a Preferred Provider Organization, or PPO. The second is called a Point of Service plan, or POS.

Here's how they work:

Both of these plans have a network of doctors and hospitals, but you have the option of going outside that network to seek care. However, it is less expensive to stay within the network.

Both plans require you to pay a premium and co-pays if you stay within the plan network. If you seek treatment outside the network, you'll pay a premium, deductible and co-insurance. One difference is that POS plans require you to choose a primary care physician.

With a POS plan, if you want to see a specialist within the network, you'll need a referral from your primary care doctor. In a PPO plan, you don't need to choose a primary care physician and you won't need referrals.

Basically, you have more flexibility in the PPO plan, but it will generally cost more than a POS plan.

Remember that all insurance plans, and companies, are different. Take the time to research, understand and choose a quality plan that is best for you and your family.