A Simple Guide to Health Insurance From the Palo Alto Medical Foundation
You're not the only one who doesn't know the difference between an HMO, PPO and Point of Service plan.
Millions of people, smart people, are at a total loss when it comes to understanding the jargon of the health insurance industry. And without that understanding, choosing a good health plan is a shot in the dark.
That's why we've written this booklet. Inside are simple definitions, things you should know and questions you should ask to help you evaluate which health plan is best for you and your family.
Read it slowly, carefully. If you come across a word you don't know, look it up in the glossary. (Glossary words are italicized to make them easier to spot.) Tear out and use the checklist in the back; a little work now could save you a lot of headaches later.
And don't bother looking for the sneaky sales pitch for the health plans we offer. There isn't one. This booklet isn't intended to help us. It's intended to help you.
We want you to understand your choices so that you can choose wisely.
Basically, there are four ways to go.
Before you start shopping for health plans, you need to understand one thing: coverage. Although the same condition - emergency care, let's say - is included in many plans' coverage, it doesn't mean that a plan pays for 100% of the cost of emergency care. Some plans cover 80% of the expenses incurred, others 50%. When you shop for health plans, what you're really shopping for is the kind of coverage that's most beneficial to you.
Having said that, you now need to know that there are four basic types of health plans available to people who do not receive Medicare or Medi-Cal. A basic understanding of each is essential to choosing one that works for you.
INDEMNITY INSURANCE: (also called Fee-For-Service)
This is the traditional insurance coverage you're probably familiar with. It pays for most of your health problems, but doesn't usually pay for preventive care like well-child visits and physical exams.
Indemnity insurance doesn't cover the total cost. Coverage is usually limited to a percentage of the billed amount. Under an indemnity plan, you can see any doctor or hospital you want, but the monthly premium is usually higher than other types of health plans.
HMO: Health Maintenance Organization
An HMO covers most of your health care needs, including checkups, immunizations and hospitalization, for a small co-payment typically between $5 and $40. With an HMO there are no claim forms but you can only use doctors and hospitals affiliated with your plan. A list of affiliated physicians is provided by the HMO. An EPO (Exclusive Provider Organization) is a similar type of plan which functions in much the same way as an HMO.
PPO: Preferred Provider Organization
A PPO covers many of your health care needs for a small per-visit fee if you choose from the list of "preferred providers." You can choose to see a doctor who's not on the list, but you'll foot a greater part of the bill and may have to pay a deductible. Some PPOs do require claim forms.
POS: Point of Service
A POS plan gives you two different choices each time you use health care services: One choice is to use the plan just like an HMO, and you will be responsible for a nominal co-payment, for choosing physicians who are on the list and for obtaining authorizations for certain services and referrals to specialists. Your other choice is to use your health plan just like an indemnity plan by choosing care from either a participating provider or a non-participating provider, without coordinating care through your primary care physician or health plan. When using your health plan like indemnity insurance, you are generally responsible for a deductible and a percentage of your bill.
he best time to join a health plan is before you need one
Don't wait until you're sick to look for a health plan. Not only does it take time to find a plan you like, many plans have pre-existing condition exclusions, which could leave you out in the cold.
Think ahead. Are you planning a family? Will you need surgery soon? Will you be moving out of the area?
If you or your spouse is employed and want to change plans under your employer, ask about open enrollment. But don't wait until the last minute to start shopping around. Give yourself two months to do your homework for the best results.
If your employer doesn't provide health insurance, you'll need to focus on health plans that offer insurance to individuals. You might also investigate associations that offer members the opportunity to join a health plan.
Your health plan is as good as the physicians In it.
Good health plans start with the doctor.
The first step in choosing a health plan that's right for you is choosing a doctor who's right for you. If you have a doctor you like, find out the plans in which he/she participates.
Next, consider your special medical needs. If you regularly see a particular cardiologist, allergist or any other specialist, you may want a plan that lets you continue doing so without a referral. (This is especially true when choosing an HMO, which may require an authorization to see certain specialists.)
Lastly, think of the hospitals and health facilities you like. Do certain facilities specialize in medical areas that are of particular importance to you? Is one facility more convenient than another? Find out which hospitals are affiliated with which plans.
Ask for an insurance brochure for each plan you're interested in. Follow our checklist.
Read the plan's fine print - don't wait until you need it.
A Few Examples
Maybe these examples will point you in the right direction.
You're single, you earn a good wage, and (lucky for you) you're the picture of perfect health.
Since you rarely see a doctor, your best bet is to choose a plan with a low monthly premium and a higher co-payment. But you should also look for a plan with good coverage in areas that are important to you, e.g., routine physicals, emergency care.
You're a family of four and your oldest is about to start kindergarten.
You'll soon be seeing your pediatrician more than you see some friends. You'll want a plan with low co-payments because those visits will really add up. Immunizations, checkups and prescriptions should all be covered expenses. If you already have a pediatrician you like, choose a plan with which he/she is affiliated. You'll also want to make sure a covered urgent care center and hospital are nearby.
You're married and planning a family.
You need a health plan with good maternity and well-child care. Maternity care should include prenatal, delivery and nursery care that begins at the moment of birth. Ideally, you should also plan for unforeseen circumstances like emergency cesarean section and infertility problems. Well-child care will be important to monitor the progress of your healthy baby until 2 years of age. Routine checkups and immunizations should be part of the coverage. Look for a plan with low co-payment since you'll be seeing your doctor a lot.
Let's say you're a 40-50 year old with a modest monthly income.
You've just been diagnosed with a knee problem for which you'll have to undergo ongoing treatment. You'll need a health plan that lets you see the specialists you want as often as you want to. You'll be taking prescriptions, so you'll want to make sure those are covered expenses. Since your income is modest, low co-payments are important. You may pay a higher premium to get the coverage you want, but the advantages will be worth every cent.
Questions to Ask
The best way to find the answer is to ask a lot of questions.
When you start reading over your insurance brochures, take the time to ask yourself some questions.
If you can't find the answer, or you don't like the answer you get, move on to another brochure.
Q. Can I see my own primary care physician and specialists?
A. Different types of plans have different rules about which doctors you can see. If you can't find the answer in this insurance brochure, ask to see a list of participating doctors. Before you sign up with any plan, ask your doctor if he/she is still affiliated with that plan and can refer you to the specialist of your choice.
Q. If you have an ongoing health problem or condition, how will the plan cover it?
A. Some plans let you see specialists (like orthopedists or allergists) as often and for as long as you want. Others require an authorization that is based on the referral being medically necessary, according to your primary care physician's judgment. If you take medications, prescription coverage is important. Some plans also have different pre-existing condition restrictions. Read the fine print.
Q. Is maternity care covered?
A. Check your plan for coverage of routine checkups, screening tests, and prenatal educational classes.
Q. Does the plan cover preventive care for my children?
A. Plans vary in the coverage of periodic physicals, immunizations and school physicals.
Q. Do I have to fill out claim forms?
A. As a general rule, when receiving covered services: HMOs do not require you to complete forms; neither do Point of Service plans or PPO plans when you are seeing participating providers and have obtained any necessary authorizations; indemnity plans usually require you to do the claim form paperwork.
Q. Is the least expensive plan always the best buy?
A. First, start with a plan that offers coverage to match your needs. If all things are equal, only then should you consider the cost. You'll need to look at the monthly premiums versus out-of-pocket costs (deductibles, co-payments) to determine what will cost you the least as you use services during the year.
Q. How can I minimize out-of-pocket expense and maximize coverage to receive the highest level of benefits available?
A. HMO, PPO, and POS plans are generally less costly. Within those plans you can minimize out-of-pocket expenses by selecting participating providers and by obtaining referrals and authorizations when necessary.
A glossary of Terms
Allowed Expenses: The maximum amount a plan pays for a covered service. See Usual and Customary Charges.
Benefits: These are medical services for which your insurance plan will pay, in full or in part.
Claim: A notice to the insurance company that a person received care covered by the plan. A claim is also a request for payment.
Co-insurance: A term that describes a shared payment between an insurance company and an insured individual. It's usually described in percentages; for example, the insurance company agrees to pay 80% of covered charges and the individual picks up 20%.
Co-payment: The insured individual's portion of the cost, usually a flat predictable dollar amount, like $10 per office visit, for example. Under many plans, co-payments are made at the time of the service and the health plan pays for the remainder of the fee. Generally, a plan will either require co-payments without a deductible, (HMO, POS plans) or co-insurance and a deductible, (indemnity, PPO plans).
Coverage: What the health plan does and does not pay for. Coverage includes almost everything mentioned in this booklet: benefits, deductibles, premiums, limitations, etc.
Covered Expenses: What the insurance company will consider paying for as defined in the contract. For example, under some plans generic prescriptions are covered expenses while brand name prescriptions are not.
Deductible: A portion of the covered expenses (typically $100, $250 or $500) that an insured individual must pay before insurance coverage with co-insurance goes into effect. Deductibles are standard in many indemnity policies, and are usually based on a calendar year.
Managed Care Plan: A term that typically refers to an HMO, Point of Service, EPO, or PPO, but technically means any health plan with specific requirements, like pre-authorization or second opinions which enable your primary care physician to coordinate or manage all aspects of your medical care.
Maximum Out-of-Pocket: The most money you can expect to pay for covered expenses. The maximum limit varies from plan to plan. Some companies count deductibles, co-insurance, or co-payments toward the limit, others don't. Once the maximum out-of-pocket has been met, the health plan will pay 100% of certain covered expenses.
Open Enrollment: A specified period of time in which employees may change insurance plans and medical groups offered by their employer and have the new insurance effective at a later date, usually the next month. Open enrollment usually comes once a year.
Pre-existing Condition: Unfortunately, there's no clear cut definition of this term; each insurance company has a different way of looking at it. Generally speaking, it's a medical condition which was first treated or first manifested itself prior to your enrollment in a plan. Some plans totally exclude pre-existing conditions from coverage; others have a waiting period of six months to a year.
Preauthorization: An insurance plan requirement in which you or your primary care physician need to notify your insurance company in advance about certain medical procedures (like outpatient surgery) in order for those procedures to be considered a covered expense.
Premium: The money paid to a health plan for coverage. Premiums are usually paid monthly and may be paid in part or in total, by your employer.
Primary Care Physician: (PCP) Under many plans, you'll be asked to name a family practice doctor, pediatrician or an internal medicine physician as your primary care physician. A PCP is responsible for coordinating all of your care. Any specialist referrals you'll need must first be approved by your PCP in order to be considered a covered expense.
Provider: The supplier of health care services. This could be a physician, a hospital, a physical therapist, etc.
Specialist: A physician who practices medicine in a specialty area. Cardiologists, orthopedists and gynecologists are all examples of specialists. Under most health plans, family practice physicians, pediatricians and internal medicine physicians are not. Some health plans require preauthorization from your primary care physician before you can see a specialist.
Usual and Customary Charges: The average cost of a specific medical procedure in your geographic area. This is the maximum amount some insurance companies will pay for certain covered expenses. They're also referred to as allowed expenses, and they reflect the provider's retail cost of service. (The actual fee for open heart surgery may be more than your plan's usual and customary charges. In that case, you'd pay the difference and that amount would be applied to your maximum out-of-pocket.)