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Plans & Benefits - Health Insurance Basics

Health Insurance Types

Health insurance can be broken down into two broad categories:

  • Traditional
  • Managed Care

Today, there are many variations and combinations of plan types:

  • PPOs (preferred provider organizations)
  • POS, or Point-Of-Service plans
  • Health Maintenance Organizations (HMOs)
  • High-deductible, consumer-driven health plans, often attached to HSAs and HRAs

No one type of health care plan is better than the other. It really depends on your needs and preferences – and your budget. Some people enjoy the autonomy offered by less structured plans, while others prefer the low costs associated with high-deductible plans and EPOs. Also, as health insurers compete for business, distinctions among the types of plans may blur.

Today's Healthcare Landscape

Managed care has been around in one form or another since the 1930s, but it really took off in the last ten to twenty years. As it grew, it evolved, leaving us with three basic types of plans. Although there are important differences among the different types of plans, there are some similarities

All managed care plans involve an arrangement between the insurer and a selected network of health care providers, and they offer policyholders significant financial incentives to use the providers in that network. There are usually explicit standards for selecting providers and a formal procedure to assure quality care.

Preferred Provider Organizations (PPOs)

PPOs have made arrangements for lower fees with a network of health care providers. PPOs give their policyholders a financial incentive to stay within that network.

With a PPO, you can refer yourself to a specialist without getting approval and (as long as it's an in-network provider) enjoy the same co-pay. Staying within the network means less money coming out of your pocket and less paperwork. Preventive care services may not be covered under a PPO.

Point of Service (POS)

Point-of-service (POS) plans are similar to PPOs, but they introduce the gatekeeper, or Primary Care Physician. You choose your PCP from among the plan's network of doctors. As with the PPO, you can choose to go outside the network and still get a level of coverage.

Health Maintenance Organizations (HMOs)

HMOs today typically have a very flexible out of network benefit, but, when people think about and talk about HMOs, sometimes they're really talking about closed-panel HMOs -- the least expensive, but least flexible type of health plan which require you to obtain care in-network to have any coverage. HMOs sometimes have medical offices (medical centers or clinics) but usually they consists of a network of individual physician’s practices.

Consumer Driven Health Plans (CDHP)

The latest development over the past several years is consumer-driven plans. Consumer Driven Health Plans offer potential savings for both members and employers while still providing reliable coverage. These plans are customized solutions designed to empower you to make educated decisions about your health care. Consumer health care coverage can be combined with Consumer Driven accounts such as HSAs and HRAs, some of which are employer sponsored or funded by you. These accounts offer tax deductions or the benefit of pre-tax dollar contributions.