Types

Like the weather, "everybody talks about" health insurance. The second part of that adage is "but nobody ever does anything about it." In the case of the weather, there is not much that can be done; in the case of health insurance, there are so many things that can be done, most people do not understand what to do.

For most people, health insurance comes as a fringe benefit to the job, but that has been changing in recent years. According to U.S. Census Bureau data, the number of Americans who receive insurance from their employers dropped from 61.3 percent (175.3 million) in 2002 to 60.4 percent (174.0 million) in 2003. Therefore, knowing how to shop for benefits is becoming increasingly important.

Types of Plans

Essentially there are two types of health insurance plans – indemnity (or pay-for-service plans, the traditional type of health insurance) and managed care (such as a health maintenance organization (HMO) or preferred provider organization (PPO)). The major differences in the plans center on choice of providers, out-of-pocket costs for covered services, and how bills are paid.

Pay For Service

With indemnity plans, subscribers can use any medical provider (such as a doctor and hospital). The bill gets sent to the insurance company, which pays part of it. Usually, the patient has to pay a deductible – typically $100 to $200 -- each year before the insurer starts paying. After that, the majority of covered medical costs, as much as 80 percent or even 100 percent for certain procedures, is paid by the insurance company.

Managed Care

Under the managed care plans, the HMOs and PPOs make agreements with certain doctors, hospitals, and health care providers to provide services to plan members at reduced cost. In general, there is less paperwork and lower out-of-pocket costs with managed care plans. The drawbacks to managed care are that participants have a limited pool of health car providers and it can be difficult to get approval for services not covered by the plan.

Changing Landscape

As health insurance companies compete for business, managed care plans have been adding services more like the pay-for-service plans (such as allowing subscribers to see physicians outside the network) and indemnity plans have been adding options similar to managed care.

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