HEALTH INSURANCE SIMPLIFIED -
A short tutorial
There are five basic types
of health insurance. There are also a
few variations of the basics, however, if you understand the five, the
variations will be easily understood.
First, let’s start with the
names of the five types.
HMO-Health Maintenance Organization
POS-Point of Service
PPO-Preferred Provider Organization
Indemnity-A health plan with no preferred physician/hospital network
HSA-Health Savings Account
All plans have certain
things in common. It would be helpful
to understand what they are so you can see how they apply to each type of
insurance.
Deductible-This is the portion of any health charges that you
pay before the insurance company pays anything (many plans waive the deductible
for physician office visits, instead using an office visit co-pay). ALL plans have a deductible. It may vary from $0 to $10,000, but it’s
always included in the plan benefits.
Coinsurance- After the deductible is met, you enter into a
period of coinsurance. It’s just what
the name says. Two entities are paying
the health costs during the coinsurance period. When you see the term 80/60 it means that if you stay in network,
you pay 20% and the insurance company pays 80% of the charges. Out of network, you pay 40% and the
insurance company pays 60%. There is
normally a stop loss of $1000 or more that the insured has to pay. In other words, if your plan reads 80/20
through $5000, you would be responsible for 20% of $5000. Then the insured’s
liability would stop and the insurance company would pay the rest.
Not all plans have
coinsurance. Often, you won’t find
coinsurance in an HMO plan, and often it won’t be in an HSA eligible plan.
After the deductible and
coinsurance have been met, the insurance company has the liability of any other
covered health charges during the plan year (other than co-payments).
There is one more term you
should be familiar with and that is the network.
Normally, an HMO has a co
pay for all services. The reason we say
this is the most comprehensive coverage is that the co pay covers all the
service that the physician or lab charges.
When you go for an office visit, it’s all-inclusive. There is normally a co pay for a hospital
stay or outpatient surgery. If you
encounter coinsurance on an HMO, it usually will be in conjunction with a co
pay for the hospital stay. HMO’s
usually fully cover the cost of physicals, where the other plans normally have
a limit to what they will pay for a physical.
Advantages-The HMO offers the broader coverage with less out of
pocket costs during the plan year.
Disadvantages-Primarily less choice in doctors and hospitals. Many of the doctors in an HMO will be
employees of the HMO and not in private practice. Treatment is often in a clinical environment.
POS- A POS plan is simply an HMO that also includes an
indemnity plan that allows you to go out of network if you choose. All the info on the HMO applies to the POS
plus the benefits of out of network treatment with the indemnity plan (see
below).
PPO-A PPO almost always has a deductible, and
coinsurance. If you stay within the
network, there are also co-pays for certain services where the deductible and
coinsurance do not come into play. For
example, an office visit might be a $15-$40 co-pay without regard to a
deductible or coinsurance. For a
hospital stay, you would be responsible for the deductible and your portion of
the coinsurance. A word of caution, the
co-pays are often not all inclusive.
For example, an office visit co-pay may mean that it just covers the
physician’s portion of the visit. Any
lab or x-ray charges, might go towards your deductible and you would have to
pay the charges.
There is always an
indemnity plan included in the PPO which allows you to see any doctor you wish,
however, the out of pocket charge to you will be greater.
Advantages-A PPO provides a great deal of choice of doctors and
hospitals. Because of this, the PPO’s
are the most popular plans at this time.
Disadvantages-Coverage not as comprehensive as an HMO and you
would experience greater out of pocket expense.
H S A-The Health Savings Account, formerly MSA, was
established by Congress in an effort to make people more responsible for their
health care costs. Normally, it is some
type of indemnity plan with a high deductible.
As an incentive for a person to manage their health care costs, Congress
allowed an insured to pay into a special H S A account an amount equal to their
chosen deductible. This payment would
be taken from the insured’s income on a before tax basis. The insured would
then be allowed to use this account to pay for medical and related
expenses. The money could even be used
to cover medical charges not covered by their health plan.
To further simplify, the H S
A comes in two parts. One is a high
deductible health plan for which you would pay a reduced premium. The second is a medical saving account,
where you could pay into the account an amount annually, up to the amount of
your deductible. This account is your money. If you use the money to pay
medical expenses, it is never taxed. If
you do not use the money in this account, it will remain your money and
essentially becomes like an IRA. The
difference is between an I R A and an H S A is the H S A funds can be withdrawn
at any time to pay medical expenses without penalty. Also, any excess funds must remain in the H S A account until age
65 in order to be withdrawn without penalty.
Any monies withdrawn after age 65 will be subject to regular income tax
at the time of withdrawal.
We hope this information is
helpful to you. If you would like
further information or have questions, please feel free to contact us at
Insurance Now and we will spend whatever time is needed to help you make sure
that you select the right plan for you.