The Types of Health Insurance Plans
Understanding the kinds of health insurance plans isn’t easy. Textbook definitions differ from real-world designs offered by your employer or private insurance agencies.
Insurance companies may use corporate doublespeak, christening a plan with a name that is misleading and even the opposite of the plan type. And you may not be able to use the plan as intended because its design is not in sync with the day-to-day practices of healthcare providers, through no fault of the insurance company. (See also: How to Find Free (or Cheap) Health Resources)
Theoretical Health Insurance Plans
Still, it is useful to learn about the kinds of health insurance plans. In theory, comprehensive health insurance plans fall under one of these categories.
HMO Plans / EPO Plans
Health Maintenance Organizations (HMOs) and Exclusive Provider Organizations (EPOs) restrict your choice of providers (physicians, hospitals, etc.) as a way to manage care and contain costs.
Typically, a primary care physician (PCP) coordinates your care with specialty physicians and other providers within the HMO or exclusive provider network. To keep costs low, preventive care is emphasized. Also, you might have less say in the care you receive or find that getting a referral is difficult because the plan design encourages cost control.
Monthly premiums may be relatively higher but usage costs, such as co-pays, coinsurance, and deductibles, tend to be lower than average. Overall, expenses should be lower based on better management of healthcare expenditures on your behalf.
Preferred Provider Option (PPO) or Preferred Provider Network (PPN) plans have a list of healthcare providers that are preferred. There are financial incentives to visit these physicians, have surgical procedures at these hospitals, etc. as compared to those that are not preferred, aka out-of-network providers.
Generally, when you use network providers, you pay lower co-pays and fee percentages. Plus, you get pre-negotiated, discounted rates for services as compared to higher costs associated with out-of-network physicians and facilities.
A PPO plan may have specifications on how you get coverage for services. For example, you may need to get a pre-certification to cover the cost of surgery.
Point-of-Service (POS) plans are sometimes described as a hybrid of HMO and PPO plans, or considered so similar to PPOs that they are classified together. Similar to the HMO, you choose a primary care physician from a list of approved providers and the PCP manages your care, making referrals to specialists as deemed appropriate.
Like the PPO, there are financial incentives to using in-network providers, but you can get some reimbursement (or have charges applied to deductibles, out-of-pocket limits, etc.) when you use out-of-network providers.
Fee-for-service plans are considered traditional plans or traditional indemnity plans, meaning that the insurance operates like your auto or homeowner's insurance. You pay monthly premiums and when you visit a healthcare provider, you file a claim. After you meet the deductible for the year, you receive reimbursement for your expenses.
Under traditional plans, there is no mechanism that controls healthcare expenses or limits your usage, until you reach maximums (if any) for reimbursement. (See Health Insurance Plans, Two Other Numbers to Look at to learn about annual and lifetime maximums.)
High-deductible health plans (HDHP) have, well, a high deductible. Except for preventive care (which may be covered under your policy), you must reach the deductible before you get reimbursement for medical expenses.
HDHPs are considered HSA eligible if the deductible is at least $1,200 for an individual or $2,400 for a family, and other requirements are met. You can set aside money in a Health Savings Account (HSA) for expenses in the current year or future years; plus you can get a tax break for contributions. When the plan is linked to an HSA, the plan may be called an Account-Based Health Plan (ABHP).
These plans may also be described as consumer-directed health plans (CDHPs) because there is generally less oversight by the insurance company or physicians in regard to healthcare spending. As the name implies, the consumer directs healthcare purchases. Because more responsibility is placed on the consumer to pay a greater portion of medical bills (at least for day-to-day expenditures), the insured has a greater incentive to control costs. (See The Myth of Consumer-Directed Health Care on the difference between theory and practice.)
Real-World Health Insurance Plans
In practice, the lines between the various types of plans are blurred, Kiplinger’s Kimberly Lankford tells me. For example, she explains that most health insurance plans, whether HMO, PPO, POS, Fee for Service, or HDHP, offer a network of providers along with financial incentives to use these providers.
Looking at the actual design of a specific plan offered by your employer or available through a private insurance company, then, may be more useful than trying to determine costs and benefits based on a plan’s label. Consider these features that may be common among many plans:
- There is a financial incentive for using in-network providers, such as lower co-pays.
- It costs more to use out-of-network providers except in an emergency.
- Primary care physicians are responsible for directing your care; that is, a referral is required to see specialists.
- Prevention is emphasized and covered under the policy without having to reach deductibles.
- The deductible is high.
From my experience, many physicians, hospitals, and other medical providers follow managed-care protocols associated with HMO, EPO, PPO, or POS plans regardless of your insurance plan. For example, a specialist may require you to have a referral from a primary care physician even if your HDHP does not have this requirement.
Or providers may make recommendations about your care by saying “your insurance will cover _____ procedure” or “your insurance won’t pay for ____ visit” based on their past experiences with other types of insurance, not specific knowledge of your plan. Their thinking might be so rigid and attuned to matching care with expected insurance coverage that you are not given the right information in order to use your plan as designed.
On the other hand, you may enlist the help of your primary care physician to make decisions, let you know what kind of screenings may be most beneficial based on your family medical history, advise on what tests may be needed to diagnose a condition, etc. So, even if you have a CDHP, you can create your own kind of “managed care” without the restrictions of an HMO, PPO, etc.
What kind of health insurance plan do you have? Does it neatly fall into one of these categories or are the lines blurred?