My employer recently changed healthcare carriers, choosing plans that were more affordable, and adding variety to what had previously been offered. When they handed us the thick packet of paperwork, we scratched our heads in collective puzzlement. PPO? HSA? OMG, SMH! It was all Greek to us. It took a meeting with the human resources coordinator and hours of laborious reading for me to gain a modicum of understanding of the convoluted information. Read on for a summary of healthcare plans offered in the US.
Indemnity plans pay a percentage of your medical bills, with the remaining amount being your responsibility to pay (for future reference, this is called coinsurance). For example, the plan may be 80/20, meaning that 80% of your costs are covered, and you are responsible for the remaining 20%. There are generally deductibles with these plans, and as with most healthcare plans, higher deductibles mean lower premiums.
One important note is that these plans only pay X percent of a usual and customary cost for the services performed; if your healthcare charges higher than the usual and customary cost of the service, then you are not only responsible for the agreed upon percentage, and for the amount that is above and beyond the usual and customary cost as well (i.e., X percent plus the additional amount). This makes competitive pricing essential for those covered under an indemnity plan. By calling around for health insurance quotes, you can avoid having to pay more than you should.
Health Maintenance Organization (HMO)
HMOs charge a set premium in exchange for a range of benefits, including preventative care. Those insured under an HMO see providers, doctors, hospitals and labs within the plan’s network, and must have a referral from their primary care provider to see a specialist, also within the network. Most HMOs require a copayment in addition to the premium.
Preferred Provider Organization (PPO)
PPOs are similar to indemnity plans, in that participants can see any provider they want; providers within the plan’s network are fully covered after a copayment is rendered, while doctors without are covered up to an agreed-upon percentage (usually 70, 80, or 90 percent) with the remainder being your responsibility. Many PPOs have deductibles, with the usual higher-deductible/lower-premium ratio, with these premiums generally being lower than those of indemnity plans. Unlike HMOs, referrals are not necessary, making this a very flexible option.
Point-of-Service (POS) Plan
POS plans effectively combine attributes of HMOs and PPOs, in that you can choose a primary care physician and be covered under HMO-style guidelines, or you can choose a PPO provider under PPO-style rules. A third possibility with this plan is that you can opt to go outside of either network, and be reimbursed under out-of-network procedures. POS plans frequently have deductibles.
Health Savings Account (HSA)
HSAs are a relatively new addition to the health insurance market, having been created by Congress in 2003 in response to dissatisfaction with the relative inflexibility of many traditional health insurance plans. Rather than paying a premium, copayments, and coinsurance, participants pay premiums that are typically lower than other plans, along with a percentage of their pay (if they choose). Employers often contribute an agreed-upon amount into employees’ accounts.
This plan is best for those who want lower deductibles, and who don’t anticipate frequent medical care. This money is paid prior to taxation, making this a tax-advantaged choice, and lowering the overall amount of pay to be taxed. Another positive aspect to this plan is that it covers items that might otherwise not be covered, such as eyeglasses and hearing aids. Money in an HSA can be invested, with the investment gains being tax free. Finally, many HSAs offer rollovers, meaning that contributors don’t have to worry about “using it or losing it”.
In addition to health insurance, employees are generally offered other kinds of insurance. Life insurance offers peace of mind to employees wishing to ensure that their family is cared for in the event of their death. There are two types of life insurance: term and whole. Term insurance requires premiums, and covers the insured for a set period of time, usually 20 years. A convertible term life policy starts as a basic term policy, and eventually converts to whole life. These plans typically have lower premiums than whole life policies.
Whole life policies are considerably more expensive than term life policies, and can be seen as an investment for the future. Rather than only covering you for a preset amount of time, whole life insurance will cover you for the duration of time that you pay premiums, or until you cash in your policy. In addition, funds can be invested, with a preset cap on acceptable losses. In the event of your death, payment to beneficiaries is tax-free.
There are also two types of disability insurance: short-term and long-term. Short-term disability will generally cover participants for upwards of two years, while long-term disability could potentially cover the insured for a lifetime. Because disability claims are more prevalent, participant are screened more closely than with other forms of insurance; if the insured has certain preexisting conditions (i.e., back problems and psychiatric care), they can either be ineligible for coverage, or these conditions may be made exempt from coverage. Women are more likely to be charged higher premiums than men due to heightened awareness of their personal health, and therefore more likely to file disability claims.
When choosing insurance, there are basic questions that you should ask yourself to make this process easier. If selecting health insurance, determine how often you plan on using your benefits, how much flexibility you require, and how much you can afford to pay in premiums. When choosing life or disability insurance, ask yourself how much insurance you need (in the case of life insurance), and how healthy and safe your overall lifestyle is (for disability insurance). In this way, you can be sure to avoid costly medical bills, and ensure proper care for your loved ones while you’re at it.