Health Insurance 101

What is the purpose of health insurance?

Health insurance protects you from the high cost of medical care by providing coverage for specific health care services. Although you generally pay a monthly premium and either co-payments or co-insurance, the cost for insurance is far less than medical care would be if paid fully out-of-pocket.

What are the major types of health insurance policies?

There are three umbrella types of health insurance - consumer-directed, fee for service (often known as "traditional" or "indemnity" plans) and managed care. These types of plans cover medical, surgical and hospital expenses and depending on the plan, may cover prescription drugs, dental and behavioral/mental health coverage.

Fee for service plans mean the doctor or other health care professional will be paid a fee for each health care service provided to the patient. Patients can see the doctor of their choice and the claim is filed by either the health care professional or the patient.
Managed care plans provide coverage for comprehensive health services to their members and offer financial incentives in the form of lower out-of-pocket costs to patients who use doctors participating in a network. More than half of all Americans have some kind of managed care plan - the three types include health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans.

What is an HMO?

An HMO is a type of managed care health insurance plan that allows you to receive care through a network of participating doctors and hospitals. Generally, you select a primary care physician who coordinates your care and refers you to specialists when needed. Out-of-network care is generally not covered under an HMO plan, unless the member requires care that is not available in the existing network.

What is a PPO?

A PPO is a type of managed care health insurance plan that combines features of a fee-for-service plan and an HMO. In a PPO, members who seek care within the network of participating doctors and hospitals pay lower out-of-pocket costs. Members can also seek care from nonparticipating doctors and hospitals, but pay a higher portion of the cost of care.

What is a consumer-directed health insurance plan?

Also referred to as "consumer-driven," or "consumer choice," this type of health plan gives members more choice and flexibility in making health benefits decisions and more control over their health benefits dollars. These plans often include a health fund or account for covered medical expenses. Depending on the type of fund or account, unused dollars may be rolled over annually to cover medical expenses in subsequent years for the duration of the members' enrollment in the plan. There are several types of consumer-directed plans, including Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs).

What is a health insurance premium?

A premium is the fee you and/or your employer/school pay to your insurance company to purchase a health insurance plan. This can be paid on a monthly, quarterly or annual basis.

How does a health insurance deductible work?

A deductible is the amount that you must pay for covered services in a specified time period in accordance with your plan before the plan will pay benefits. A member of a high-deductible health plan, for example, might be required to pay for the first $1,000 of medical care prior to receiving coverage under the terms of his/her benefits plan.
What is a co-payment?A co-payment is the specified dollar amount or percentage required to be paid by you or on your behalf in connection with benefits. For example, most HMO plans have co-payments in place for certain services such as doctor's visits, prescription drugs, hospital stays, etc.

What are out-of-pocket costs?

Out-of-pocket costs include premiums, co-payments, deductibles, co-insurance or other fees that you are required to pay outside of your health benefits plan.

How do I pick a health insurance plan?

If you have a choice of plans through your employer/school or you are purchasing your own coverage, it's important to understand your choices and pick the plan that is right for you and your family. There are several questions to ask yourself when reviewing health insurance plan options:
How affordable is the cost of care?
How much are monthly premiums?
How much are the deductibles?
Are the co-payments or co-insurance flat fees or percentages of service fees?
What out-of-pocket expenses have to be paid before the plan begins reimbursement?
How does the reimbursement process work?
What is the cost of out-of-network care?
Does the plan cover the services that I may use? For example:
Doctors, hospitals, laboratories and other health care professionals in the network
Out-of-network care
Treatments for pre-existing medical conditions or chronic conditions
Prescription drugs
What is the quality of the health insurance plan? Research factors of the plan such as:
Ratings of the plan by independent government and non-government organizations
Accreditation from groups like the National Committee for Quality Assurance (NCQA) or the Joint Commission on Accreditation of Healthcare Organizations (JCAHO)
Patient complaints
Member drop-out rates for the plan
Other patient experiences with the plan
Doctor experiences with the plan

What if my employer/school doesn't offer health insurance?

Employer or College subsidized group coverage is generally less expensive than anything you can get on your own. But, if your employer/school doesn't offer health insurance, or if you are unemployed, you should consider purchasing an individual health insurance policy.