How to Evaluate Your Health Insurance Plan Options

This post gives you an understanding of the major fea­tures of each type of plan, such as fee-for-service, HMO, and PPO. As you read, refer often to the Checklist in a later post, about how to choose your new health insurance plan. The Checklist is a tool to help you keep tabs on what fea­tures of health insurance plans are important to you. For details and exact provisions, always read the specific policies, contract, and/or plan document; follow up with questions to your plan administrator and state insurance agency.

To get the most from this post, know the following definitions:

Deductible: The amount of covered charges that you must pay before the insurance company will pay any benefits.Coinsurance: The set percentage of covered charges that you must pay after you have met (paid) the deductible.Copayment: A fixed fee that you must pay each time you use a specified service. Sometimes called an encounter fee.

Note: Some discussions of health insurance use the terms copayment and coinsurance interchangeably. This website uses copayment as a fixed dollar amount and coinsurance as a fixed percentage of a fee.

Most people in the United States are covered by a health insurance plan that their employer or a family member’s employer offers. Often the employer pays a portion or all of the insurance’s cost. Many other people are members of groups — such as unions, professional associations, religious or veterans’ organizations, fraternal groups, and organizations of entrepreneurs or small businesses — that have contracts with insurance companies to provide health care coverage.

To qualify for a group plan, you must meet the sponsoring organization’s or association’s eligibility requirements. For example, you may have to work a minimum number of hours weekly to participate in the plan.

Enrolling in a group plan has several advantages. You may be able to choose from among several plans that your employer offers. The cost of premiums is usually lower because of the large number of participants. If you enroll when you are first eligible to do so — such as when you start a job, when you experience a life status change (as defined by the IRS), or during an open enrollment period (an interval during which members of a plan can change health plans or coverage) ­ neither you nor your spouse or dependents have to provide evidence of insurability. In a group plan, you can’t be excluded or charged a pre­mium that is higher than that of the rest of the group.

When you select a plan, whether individual or group, avoid surprises: Carefully read the policy, contract, and/or plan doc­ument and make sure that you understand it. Before you pur­chase the plan, confirm that it includes a free-look clause. Many insurance companies include this clause, which gives you at least ten days to review the policy after you receive it. If you choose to return the policy, the company will refund your premium.

You can buy individual health insurance plans from an insur­ance agent or broker or directly from the insurance company. Start with the agent or broker who handles your car, life, homeowner’s, or renter’s insurance. Ask friends, neighbors, and work associates about their agents. Check out at least three agents. Call insurance companies, HMOs, and PPOs (see “Managed Care Plans,” later in this post) directly. Use the Yellow Pages in your telephone directory as a source for names of insurance companies. Look under the heading “Insurance” for entries that mention health insurance. Search the Internet or check out insurance company Web sites. If you don’t have a specific type of health plan in mind, ask the company representative to explain the types and cost of plans the company sells.

When you leave a job, most group plans allow you to con­tinue your coverage with the same benefits under COBRA (discussed in detail later in this post). You may also be able to convert your group plan to an individual plan, which may offer benefits that differ from the group benefits. The advan­tage of this option is continuity of coverage. You don’t have to repeat the enrollment process, so you won’t have to qual­ify or worry about a waiting period based on a pre-existing condition (a medical condition that is actively being treated during the application process).

When you apply for coverage in an individual plan, be pre­pared to answer many questions in detail about your med­ical history and the history of family members you want to cover. You may have to take a physical and/or release med­ical records to the insurance company. Depending on your (or a dependent’s) health condition, an insurance company may write a plan that excludes a pre-existing condition, or the company may charge a higher premium for the policy.

Don’t be surprised at the much higher price and lower ben­efits (including prescription benefits) of an individual plan — you don’t have the advantage of group clout. How­ever, in an effort to keep costs down, you may be able to work with the insurance company to customize a plan that fits your specific needs. For example, you can choose a higher deductible to lower your premium costs.

With a noncancellable policy, your coverage continues as long as you keep paying the monthly premium. Under this type of policy, the insurance company can increase your premi­ums but can’t cancel your coverage. Another type of policy is a conditionally renewable policy. This qualification allows an insurance company to cancel all policies similar to yours but protects your policy from being individually selected for termination.

In some cases, insurers may consider you a high risk, perhaps because of a pre-existing condition. If you can’t get health insurance anywhere, you may be eligible for your state’s high-risk pool.

High-risk pools make health insurance available to everyone, regardless of their health. Costs are high, coverage may be minimal, and you may have to pay higher deductibles and coinsurance, so consider this type of coverage only after you exhaust other possibilities. The structure of high-risk pools varies from state to state, so be sure to check with your state’s insurance department for specific information. If you want to insure dependents who aren’t high risk, finding another health insur­ance plan is much more economical.

Fee-for-service health insurance plans (also known as indem­nity plans) are what people think of as traditional health plans: Insurance companies pay the fees for covered services, gen­erally after you pay a deductible. This type of plan allows you to choose any doctor, and you can change doctors at any time. You can go to any hospital, anywhere in the country. This type of plan is more common in individual policies than in group policies. Fee-for-service policies usually offer com­prehensive coverage, a combination of basic coverage and major medical coverage.

Basic coverage includes benefits for expenses you incur dur­ing a hospital stay, such as

Hospitalization, including room and board and regu­lar nursing services during the hospital stayOther hospital charges, such as inpatient X rays, lab tests, anesthesia, supplies, and medicationsSurgical expenses, including surgeons’ charges and other charges for surgery both inpatient and outpatientPhysician expenses, including visits to the doctor’s office and visits the doctor makes to the patient at home or in the hospital

Note: This plan may not cover preventive care, such as check­ups, so you may have to pay these expenses yourself.

You usually receive benefits during a hospital stay for a set number of days; the plan also has a maximum amount that it pays per day. In both cases, you’re likely to be responsible for the balance. A plan may pay for extended home care for a short time or not at all. Some plans don’t pay for prescrip­tion expenses.

Some indemnity plans pay a fixed amount to the provider or to the insured person, regardless of the amount charged for the actual expense. Scheduled plans set a maximum amount they pay for each service. These amounts reflect the reason­able and customary — also called usual and customary — fees for such services in the same geographic area in which they are provided. (See a later post for more on reasonable and cus­tomary fees.) You may have to pay the difference in cost ­ in addition to the deductible and coinsurance you’ve already paid — between what your provider charges and the reason­able and customary fee.

Before your treatment, ask your provider to submit a pre­treatment review to the insurance company so that both you and the provider know up front what the insurance company will pay and what your cost will be for the procedure.

Avoid paying the difference in cost between what your provider charges and the reasonable and customary fee by asking your doctor to accept your insurance company’s pay­ment of the reasonable and customary fee as payment in full. If this tactic doesn’t work, consider looking for another doc­tor who will accept this amount.

Major medical coverage, normally purchased along with basic coverage, supplements basic policy benefits by covering the major expenses of a catastrophic illness or injury. Major med­ical coverage comes into play when basic coverage benefit amounts are used up. After the insured pays the deductible (toward the amount for covered charges that basic coverage did not pay), major medical insurance may reimburse expenses for the greater portion of covered charges — the serv­ices that go beyond what a basic plan covers. These charges may include unpaid, covered hospital expenses such as

Hospital room and boardGeneral nursing servicesAdditional hospital servicesSurgeon’s and physician’s feesAnestheticsAnesthesiologists’ servicesCharges incurred out of the hospital such as for home care for extended periods and prescriptions

Policies usually include a maximum level of benefits, too. The maximum amount the insurance company will pay for a par­ticular service or over the lifetime of the policy is called a cap.

Most major medical coverage includes an annual out-of-pocket maximum clause. This provision limits the initial amount (deductible and coinsurance) that you must pay during a set period, usually a year. (Premiums aren’t considered part of the out-of-pocket expenses.) After you pay this amount, the insurer pays 100 percent of all remaining, covered expenses that you incur during that period.

Enrollees in a fee-for-service plan pay a monthly premium. After they meet the deductible, members share subsequent covered expenses with the insurance company. For example, assume that you have a $2,500 deductible. You pay the first $2,500 of covered expenses within a calendar year. You may then share the cost of the next covered expense you incur ­ perhaps the insurance company pays 80 percent of your next covered doctor visit, and you are responsible for the remain­ing 20 percent (your coinsurance).

To receive payment for fee-for-service claims, you most likely have to fill out claim forms and send them to your insurance company. Sometimes your doctor’s staff fills out claim forms for you.

Keep your needs in mind and ask some of the following ques­tions during your investigation of fee-for-service plans:

What is covered?What are the limitations?What is the total annual cost? The total annual deductible? The total annual coinsurance?What is my maximum out-of-pocket expense?What is the lifetime maximum the insurer will pay?

Table 1-1 lists the pros and cons of fee-for-service plans.

Table 1-1: Pros and Cons of Fee-for-Service Plans

Pros                                     Cons

Members can choose            May not cover certain preventive

any doctor or hospital            services, such as routine

and can consult any              physicals, to the extent that

specialist they choose.          HMOs and PPOs do.

You must pay a deductible before receiving benefits.

You must file your own claim forms.

Consider fee-for-service plans if you want to make your own health care choices, even though doing so is more expensive and involves more paperwork. Make sure that the plan you buy offers both basic and major medical coverage.

All managed care plans require you to pay a monthly pre­mium. You or your employer may pay the entire premium, or you may share the cost with your employer.

A health maintenance organization (HMO) is an insurance plan that provides health care by hospitals, doctors, and other medical professionals within a network. Plan members must use the providers within this network for the HMO to cover their medical expenses. In emergencies or when deemed med­ically necessary, HMOs may make exceptions and permit members to use providers outside of the network.

In almost all HMOs, you must have a primary care physi­cian (PCP). Sometimes the plan assigns a PCP to you; some­times you get to choose one. The responsibility of the primary care physician is to keep an eye on your health, pro­vide most of your medical care, and refer you to specialists and other health care professionals when necessary.

If you see a specialist without a referral from your primary care physician, you may have to pay the specialist’s bill yourself.

Many HMOs offer a point-of-service (POS) plan, which entitles members to refer themselves outside the plan and still get some coverage (an advantage to members who may need out-of-network specialists for certain medical conditions).

Not all HMOs offer the same services. Some plans may limit services such as outpatient mental health care. However, HMOs usually provide preventive care as a cost-saving meas­ure. Because HMOs receive a fixed fee for your covered med­ical care, preventing serious, costly illness is in their interest.

Each time you use the services of the HMO, you pay either nothing or a small copayment, perhaps $5 or $10. You don’t have to pay a deductible. Your total medical costs with an HMO are probably lower than with fee-for-service insurance.

Your paperwork is minimal in an HMO. By displaying your membership card at the time of service, you don’t have to fill out claim forms for office visits or hospital stays.

During your research, talk with people who belong to the plan, and ask them about the plan’s pros and cons. Addi­tionally, ask the plan representative questions such as

How large is the pool of primary care physicians I have to choose from?How difficult is changing primary care physicians and spe­cialists? How often can I change primary care physicians?How far in advance do I have to make appointments with the doctor? Is this wait the same regardless of which doctor I use?What are the limitations on services?How do emergency services work?What do I do if I need treatment while I’m out of town or out of the country?

Table 1-2: Pros and Cons of HMOs

Pros                                     Cons

Always covers preventive       You must use providers and

care (physicals and               hospitals within the network.
immunizations).

Has low out-of-pocket          Your primary care physician

costs.                                  must refer you to specialists.

Requires no claim forms.       You receive limited services, such

as for mental conditions and substance abuse services.

No deductibles.                        You may have to wait longer to get

an appointment.

Preferred provider organizations (PPOs) combine features of traditional fee-for-service plans and HMOs. PPOs have con­tracts with doctors, hospitals, and other providers to accept lower fees from the insurer for their services. As with HMOs, members must use the network (preferred) providers for med­ical expenses to be fully covered.

With emergency care in some PPO plans, both the hospital and the attending physician must be in the network in order for the entire service to be considered in-network.In a PPO, members can use (without a doctor’s referral) doc­tors outside of the plan and still receive some coverage. This flexibility lets you keep your current doctor, even one who isn’t part of the PPO’s network.

In a PPO you pay more of the expenses than in an HMO and may have to fill out claim forms.

If you select a primary care physician who is not in the net­work, the cost is higher, which means that you have to meet a deductible and pay coinsurance based on those higher charges. You may also have to pay the difference between what the provider charges and what the plan pays.

PPOs usually cover preventive care. Your copayment is small when you see an in-network doctor, and you don’t have to fill out any claim forms: Just present your membership card.

Carefully study the pros and cons of PPOs, listed in Table 1-3; they incorporate some features of both fee-for-service plans and HMOs.

Table 1-3: Pros and Cons of PPOs

Pros                                     Cons

You sometimes receive        You do have to fill out claim

coverage for preventive        forms if you see a doctor outside

care.                                    the network.

Your out-of-pocket costs You face higher out-of-pocket

are lower within the               costs outside the network; you

network; you generally          usually have to meet a deductible

don’t have to meet a              before the insurance company will

deductible for in-network consider their portion of the out-

services.                              of-network claim.

You can use and refer          You have to deal with more

yourself to doctors               paperwork for approvals.

outside the network.             (Membersof PPOs usually need to

obtain prior approval for inpatient care and certain outpatient procedures, whether or not the providers belong to the network.)

Your costs are paid as          May offer a range or only

fee-for-service but at             limited services.

reduced cost.

By law, group plan administrators must give beneficiaries of a plan written notice of their rights to continue and convert cov­erage. They must do so when the employee’s plan becomes effective, as well as when the plan changes to incorporate a new conversion option. Administrators must also give notice to beneficiaries within a specified number of days of a qualifying event (but the beneficiary — you — must notify the admin­istrator that the qualifying event occurred). This notice should explain the deadline by which beneficiaries must tell the employer whether they plan to continue or convert coverage.

If you miss the deadline for notifying the employer of your intent to continue or convert coverage, you may lose your opportunity to do so.

Most plans require that an employee be enrolled in the group plan for at least three months before beneficiaries can exer­cise their continuation and/or conversion options. A covered spouse who divorces or separates from the employee and cov­ered children no longer eligible for coverage under the employed parent’s plan are the people most likely eligible for the conversion option. They don’t need to submit proof of insurability, and pre-existing conditions — other than exclu­sions that already exist under the group plan — don’t affect conversion, either.

Laws and provisions may vary. Always check your state’s laws and your insurance policy, contract, and/or plan document for eligibility and other requirements governing continuation and conversion of coverage.

Another kind of continued coverage is COBRA, a federal law under which certain workers and their families, previously enrolled in a group plan, may continue the same coverage with almost no change in premiums for a specified period. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires certain companies, such as those with 20 or more employees, to offer health insurance cover­age under COBRA. However, employers not subject to COBRA, such as certain church plans and some union-sponsored plans, often provide some conversion coverage, most likely with fewer benefits than those available under the group plan.

If an insurance carrier terminates a group plan, you can’t con­tinue your coverage or convert it to COBRA.

COBRA can furnish excellent short-term coverage, bridging the gap until you find a new job with health coverage or another policy elsewhere.

You have 60 days from the date of group coverage termina­tion to decide whether to enroll in COBRA. If you choose to do so, the coverage effective date is retroactive to the date the group plan ended. You then have 45 days from the date you choose to enroll in CORBA to make your first premium payment. When your coverage under COBRA runs out, you may convert your plan as described in the previous section.