Choosing and Using a Healthcare Plan
Health care in America is changing rapidly. Twenty-five years ago, most people in the
United States had indemnity insurance coverage. A person with indemnity insurance could go
to any doctor, hospital, or other provider (which would bill for each service given), and
the insurance and the patient would each pay part of the bill.
But today, more than half of all Americans who have health
insurance are enrolled in some kind of managed care plan, an organized way of both
providing services and paying for them. Different types of managed care plans work
differently and include preferred provider organizations (PPOs), health maintenance
organizations (HMOs), and point-of-service (POS) plans.
You've probably heard these terms before. But what do they
mean, and what are the differences between them? And what do these differences mean to
Even if you don't get to choose the health plan yourself (for
example, your employer may select the plan for your company), you still need to understand
what kind of protection your health plan provides and what you will need to do to get the
health care that you and your family need. The more you learn, the more easily you'll be
able to decide what fits your personal needs and budget.
Choosing a Plan
What are my health plan choices?
Choosing between health plans is not as easy as it once was.
Although there is no one "best" plan, there are some plans that will be better
than others for you and your family's health needs. Plans differ, both in how much you
have to pay and how easy it is to get the services you need. Although no plan will pay for
all the costs associated with your medical care, some plans will cover more than others.
Almost all plans today have ways to reduce unnecessary use of
health careand keep down the costs of health care, too. This may affect how easily
you get the care you want, but should not affect how easily you get the care you need.
Plans change from year to year, so you should carefully
consider each plan, using the questions outlined in this booklet. If you get health
insurance where you work, you should start with your employee benefits office. Its staff
should be able to tell you what is covered under the plans available. You can also call
plans directly to ask questions.
Health insurance plans are usually described as either indemnity
(fee-for-service) or managed care. These types of plans differ in important ways
that are described below. With any health plan, however, there is a basic premium, which
is how much you or your employer pay, usually monthly, to buy health insurance coverage.
In addition, there are often other payments you must make, which will vary by plan. In
considering any plan, you should try to figure out its total cost to you and your family,
especially if someone in the family has a chronic or serious health condition.
Indemnity and managed care plans differ in their basic
approach. Put broadly, the major differences concern choice of providers, out-of-pocket
costs for covered services, and how bills are paid. Usually, indemnity plans offer more
choice of doctors (including specialists, such as cardiologists and surgeons), hospitals,
and other health care providers than managed care plans. Indemnity plans pay their share
of the costs of a service only after they receive a bill.
Managed care plans have agreements with certain doctors,
hospitals, and health care providers to give a range of services to plan members at
reduced cost. In general, you will have less paperwork and lower out-of-pocket costs if
you select a managed care type plan and a broader choice of health care providers if you
select an indemnity-type plan.
Over time, the distinctions between these kinds of plans have
begun to blur as health plans compete for your business. Some indemnity plans offer
managed care-type options, and some managed care plans offer members the opportunity to
use providers who are "outside" the plan. This makes it even more important for
you to understand how your health plan works.
Besides indemnity plans, there are basically three types of
managed care plans: PPOs, HMOs, and POS plans.
With an indemnity plan (sometimes called fee-for-service),
you can use any medical provider (such as a doctor and hospital). You or they send the
bill to the insurance company, which pays part of it. Usually, you have a
deductiblesuch as $200to pay each year before the insurer starts paying.
Once you meet the deductible, most indemnity plans pay a
percentage of what they consider the "Usual and Customary" charge for covered
services. The insurer generally pays 80 percent of the Usual and Customary costs and you
pay the other 20 percent, which is known as coinsurance. If the provider charges more than
the Usual and Customary rates, you will have to pay both the coinsurance and the
The plan will pay for charges for medical tests and
prescriptions as well as from doctors and hospitals. It may not pay for some preventive
care, like checkups.
Preferred Provider Organization (PPO). A PPO is a form
of managed care closest to an indemnity plan. A PPO has arrangements with doctors,
hospitals, and other providers of care who have agreed to accept lower fees from the
insurer for their services. As a result, your cost sharing should be lower than if you go
outside the network. In addition to the PPO doctors making referrals, plan members can
refer themselves to other doctors, including ones outside the plan.
If you go to a doctor within the PPO network, you will pay a
copayment (a set amount you pay for certain servicessay $10 for a doctor or $5 for a
prescription). Your coinsurance will be based on lower charges for PPO members.
If you choose to go outside the network, you will have to
meet the deductible and pay coinsurance based on higher charges. In addition, you may have
to pay the difference between what the provider charges and what the plan will pay.
Health Maintenance Organization (HMO). HMOs are the
oldest form of managed care plan. HMOs offer members a range of health benefits, including
preventive care, for a set monthly fee. There are many kinds of HMOs. If doctors are
employees of the health plan and you visit them at central medical offices or clinics, it
is a staff or group model HMO. Other HMOs contract with physician groups or individual
doctors who have private offices. These are called individual practice associations (IPAs)
HMOs will give you a list of doctors from which to choose a
primary care doctor. This doctor coordinates your care, which means that generally you
must contact him or her to be referred to a specialist.
With some HMOs, you will pay nothing when you visit doctors.
With other HMOs there may be a copayment, like $5 or $10, for various services.
If you belong to an HMO, the plan only covers the cost of
charges for doctors in that HMO. If you go outside the HMO, you will pay the bill. This is
not the case with point-of-service plans.
Point-of-Service (POS) Plan. Many HMOs offer an
indemnity-type option known as a POS plan. The primary care doctors in a POS plan usually
make referrals to other providers in the plan. But in a POS plan, members can refer
themselves outside the plan and still get some coverage.
If the doctor makes a referral out of the network, the plan
pays all or most of the bill. If you refer yourself to a provider outside the network and
the service is covered by the plan, you will have to pay coinsurance.
Primary Care Doctors
Your primary care doctor will serve as your regular doctor,
managing your care and working with you to make most of the medical decisions about your
care as a patient. In many plans, care by specialists is only paid for if your are
referred by your primary care doctor.
An HMO or a POS plan will provide you with a list of doctors
from which you will choose your primary care doctor (usually a family physician,
internists, obstetrician-gynecologist, or pedicatrician). This could mean you might have
to choose a new primary care doctor if your current one does not belong to the plan.
PPOs allow members to use primary care doctors outside the
PPO network (at a higher cost). Indemnity plans allow any doctor to be used.
Where do I get these health plans?
You may be able to get group health coverageeither
indemnity or managed carethrough your job or the job of a family member.
Many employers allow you to join or change health plans once
a year during open enrollment. But once you choose a plan, you must keep it for a year.
Discuss choices and limits with your employee benefits office.
If you are self-employed or if your company does not offer
group policies, you may need to buy individual health insurance.
Individual policies cost more than group policies.
Some organizationssuch as unions, professional
associations, or social or civic groupsoffer health plans for members. You may want
to talk to an insurance broker, who can tell you more about the indemnity and managed care
plans that are available for individuals. Some states also provide insurance for very
small groups or the self-employed.
Americans age 65 or older and people with certain
disabilities can be covered under Medicare, a federal health insurance program.
In many parts of the country, people covered under Medicare
now have a choice between managed care and indemnity plans. They also can switch their
plans for any reason. However, they must officially tell the plan or the local Social
Security Office, and the change may not take effect for up to 30 days. Call your local
Social Security office or the state office on aging to find out what is available in your
Medicaid covers some low-income people (especially children
and pregnant women), and disabled people. Medicaid is a joint federal-state health
insurance program that is run by the states.
In some cases, states require people covered under Medicaid
to join managed care plans. Insurance plans and state regulations differ, so check with
your state Medicaid office to learn more.
A pre-existing condition is a medical condition diagnosed or
treated before joining a new plan. In the past, health care given for a pre-existing
condition often has not been covered for someone who joins a new plan until after a
waiting period. However, a new lawcalled the Health Insurance Portability and
Accountability Actchanges the rules.
Under the law, most of which goes into effect on July 1,
1997, a pre-existing condition will be covered without a waiting period when you join a
new group plan if you have been insured the previous 12 months. This means that if you
remain insured for 12 months or more, you will be able to go from one job to another, and
your pre-existing condition will be coveredwithout additional waiting
periodseven if you have a chronic illness.
If you have a pre-existing condition and have not been
insured the previous 12 months before joining a new plan, the longest you will have to
wait before you are covered for that condition is 12 months.
To find out how this new law affects you, check with either
your employer benefits office or your health plan.
What plan benefits are offered?
Most plans provide basic medical coverage, but the details
are what counts. The best plan for someone else may not be the best plan for you. For each
plan you are considering, find out how it handles:
- Physical exams and health screenings.
- Care by specialists.
- Hospitalization and emergency care.
- Prescription drugs.
- Vision care.
- Dental services.
Also ask about:
- Care and counseling for mental health.
- Services for drug and alcohol abuse.
- Obstetrical-gynecological care and family planning services.
- Ongoing care for chronic (long-term) diseases, conditions, or
- Physical therapy and other rehabilitative care.
- Home health, nursing home, and hospice care.
- Chiropractic or alternative health care, such as acupuncture.
- Experimental treatments.
Some plans offer members health education and preventive
care, but services differ. Ask questions such as:
- What preventive care is offered, such as shots for children?
- What health screenings are given, such as breast exams and Pap
smears for women?
- Does the plan help people who want to quit smoking?
What is most important to me in a plan?
In choosing a plan, you have to decide what is most important
to you. All plans have tradeoffs. Ask yourself these questions:
- How comprehensive do I want coverage of health care services
- How do I feel about limits on my choice of doctors or
- How do I feel about a primary care doctor referring me to
specialists for additional care?
- How convenient does my care need to be?
- How important is the cost of services?
- How much am I willing to spend on premiums and other health
- How do I feel about keeping receipts and filing claims?
You might also want to think about whether the services a
plan offers meet your needs. Call the plan for details about coverage if you have
- Life changes you may be thinking about, such as starting a
family or retiring.
- Chronic health conditions or disabilities that you or family
- If you or anyone in your family will need care for the
- Care for family members who travel a lot, attend college, or
spend time at two homes.
How Do I Compare Health Plans?
After you review what benefits are available and decide what
is important to you, you can compare plans. Many things should be considered. These
include services offered, choice of providers, location, and costs. The quality of care is
also a factor to think about.
Look at the services offered by each plan. What services are
limited or not covered? Is there a good match between what is provided and what you think
you will need? For example, if you have a chronic disease, is there a special program for
that illness? Will the plan provide the medicines and equipment you may need?
Find out what types of care or services the plan won't pay
for. These usually are called exclusions.
Few indemnity and managed care plans cover treatments that
are experimental. Ask how the plan decides what is or is not experimental. Find out what
you can do if you disagree with a plan's decision on medical care or coverage.
What doctors, hospitals, and other medical providers are part
of the plan? Are there enough of the kinds of doctors you want to see? Do you need to
choose a primary care doctor? If you want to see a specialist, can you refer yourself or
must your primary care doctor refer you? Do you need approval from the plan before going
into the hospital or getting specialty care?
Where will you go for care? Are these places near where you
work or live? How does the plan handle care when you are away from home?
No health insurance plan will cover every expense. To get a
true idea of what your costs will be under each plan, you need to look at how much you
will pay for your premium and other costs.
- Are there deductibles you must pay before the insurance begins
to help cover your costs?
- After you have met your deductible, what part of your costs
are paid by the plan?
- Does this amount vary by the type of service, doctor, or
health facility used?
- Are there copayments you must pay for certain services, such
as doctor visits?
- If you use doctors outside a plan's network, how much more
will you pay to get care?
- If a plan does not cover certain services or care that you
think you will need, how much will you have to pay?
- Are there any limits to how much you must pay in case of major
- Is there a limit on how much the plan will pay for your care
in a year or over a lifetime? A single hospital stay for a serious condition could cost
hundreds of thousands of dollars.
You can't know in advance what your health care needs for the
coming year will be. But you can guess what services you and your family might need.
Figure out what the total costs to your family would be for these services under each
How do I find out about quality?
Quality is hard to measure, but more and more information is
becoming available. There are certain things you can look for and questions you can ask.
Whatever kind of plan you are considering, you can check out individual doctors and
Many managed care plans are regulated by federal and state
agencies. Indemnity plans are regulated by state insurance commissions. Your state
Department of Health or insurance commission can tell you about any plan you are
You can also find out if the managed care plan you are
interested in has been "accredited," meaning that it meets certain standards of
independent organizations. Some states require accreditation if plans serve special
groups, such as people in Medicaid. Some employers will only contract with plans that are
Several national organizations review and accredit plans and
institutions. You can contact these organizations to see if a plan you are considering, or
an institution in the plan, is accredited.
Another approach is to ask the plan how it ensures good
medical care. Does the plan review the qualifications of doctors before they are added to
the plan? Plans are supposed to review the care that is given by their doctors and
hospitals. How does the plan review its own services, and has it made changes to correct
problems? How does the plan resolve member complaints?
Some managed care plans survey members about their health
care experiences. Ask the plan for a report of the survey results.
Some plans and independent organizations are also beginning
to produce "report cards." These reports often include satisfaction survey
results and other information on quality, such as if a plan provides preventive care (for
example, shots for children and Pap smears for women) or if the plan follows up on test
results. Report cards may also include information on how many members stay in or leave
the plan, how many of the plan's doctors are board certified, or how long you may have to
wait for an appointment.
Report cards can only give you an idea of how a plan works
and may not give a full picture of a plan's quality. Ask plans if their activities have
been reported in report cards developed by outside groups (business or consumer
Also keep any eye out for magazine articles that rate health
Finally, you can talk to current members of the plan. Ask how
they feel about their experiences, such as waiting times for appointments, the helpfulness
of medical staff, the services offered, and the care received. If there are programs for
your particular condition, how are the patients in it doing?
Tips on Choosing a Doctor
Your doctor will be your partner in care, so it is important
to choose carefully from the doctors available to you. In some managed care plans, you
will generally be limited to choosing from only certain doctors; in other plans, some
doctors may be "preferred," which means they are part of a network and you will
pay less if you use them. Ask your plan for a list or directory of providers. The plan may
also offer other help in choosing.
You can ask doctors you know, medical societies, friends,
family, and coworkers to recommend doctors. You may also contact hospitals and referral
services about doctors in your area.
Once you have the names of doctors who interest you, make
sure they are accepting new patients. Here's how to check doctors out:
- Ask plans and medical offices for information on their
doctors' training and
- Look up basic information about doctors in the Directory of
Medical Specialists, available at your local library. This reference has up-to-date
professional and biographic information on about 400,000 practicing physicians.
- Use "AMA Physician Select," which is the American
Medical Association's free service on the Internet for information about physicians http://www.ama-assn.org/aps/amahg.htm.
You may also want to find out:
- Is the doctor board certified? Although all doctors must be
licensed to practice medicine, some also are board certified. This means the doctor has
completed several years of training in a specialty and passed an exam. Call the American
Board of Medical Specialties at 800-776-2378 for more information.
- Have complaints been registered or disciplinary actions taken
against the doctor? To find out, call your state Medical Licensing Board. Ask Directory
Assistance for the phone number.
- Have complaints been registered with your state department of
insurance? (Not all departments of insurance accept complaints.) Ask Directory Assistance
for the phone number.
Once you have narrowed your search to a few doctors, you may
want to set up "get acquainted" appointments with them. Ask what charge there
might be for these visits, if any. Such appointments give you a chance to interview the
doctorsfor example, to find out if they have much experience with any health
conditions you may have.
Research health insurance plans for individuals, families and
small business at eHealthInsurance.com.
Choosing and Using a Health Plan. AHCPR
Publication No. 97-0011, March 1997. Agency for Health Care Policy and Research,
Rockville, MD, and the Health Insurance Association of America, Washington, DC. Works by the U. S. Government are not eligible for U. S. copyright protection.
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