Health Insurance Basics

What is health insurance?
Health (also known as medical) insurance is a contract between you and an insurance company. In exchange for your payments the insurance company agrees to pay for your medical expenses under the terms of the contract.

Why do you need health insurance?
Today in America health care costs are high, and getting higher. If you become ill, your bills could be very high. I mean VERY HIGH. A short hospitalization can easily go up to $20,000. Who will pay your medical bills if you have a serious accident or a major illness? You and your family?

You buy health insurance for the same reason you buy other kinds of insurance, to protect yourself financially. With health insurance, you protect yourself and your family against unpredictable excessive medical bills.

In most cases, private health insurance comes through your employer. As part of a group plan, you can enjoy a significant discount on premiums and comprehensive policies. Whatever your health status, and regardless of your past illnesses, you'll be protected.

If you're self-employed or work for a company that doesn't offer health insurance, you can buy it on your own. Taking that route isn't cheap. You may have a wide range of options to choose from, but the final decision will probably come down to what you can afford. Pricing is probably the most bewildering aspect of the individual health insurance market, so it's worth your while to shop around. For instance, the premiums for similar products from different insurers can vary by as much as 50% for the same person. So take the time to shop around.

Types of health insurance

There are many different types of health insurance. Each has pros and cons. There is no one "best" plan. The plan that's right for a single person may not be best for a family with small children. And a plan that works for one family may not be right for another.

For example, if your family includes just two adults, it may be less expensive for each of you to have individual coverage than for just one of you to have a family plan. If you have children, or if you might have children soon, you need a family plan. Because your situation may change, review your health insurance regularly to make sure you have the protection you need.

Cost isn't the only thing to consider when buying health insurance. You also need to consider what benefits are covered. You need to compare plans carefully for both cost and coverage.

Although there are many names for health insurance plans, health insurance can be broken down into two broad categories:

1.	Traditional Plans
		Also known as Fee-For-Service Plans or Indemnity Plans
2.	Managed Care Plans, which can be furter broken down into
		Preferred Provider Organizations (or PPOs)
		Point of Service Plans (POS)
		Health Maintenance Organizations (or HMOs).

1. Fee-For-Service Health Insurance Plans
(also called Traditional Plans or Indemnity Plans)

Up until about 30 years ago, most people had traditional indemnity coverage. These days, it's often known as "fee-for-service." Indemnity plans are a bit like auto insurance: you pay a certain amount of your medical expenses up front - in the form of a deductible - and afterward the insurance company pays the majority of the bill.The main advantage of this type of health insurance plan is its flexibility. Under this type of health coverage, you have complete autonomy when it comes to choosing doctors, hospitals and other health care providers.

2. Managed Care Plans

Managed care has been around in one form or another since the 1930s, but it really took off in the last 10 years. Advances in modern medicine increased the cost of providing health care and made it possible for people to live longer. Those advances caused many insurance companies to look for ways to reduce their costs of doing business, giving birth to managed care plans. Today, the majority of people with private health insurance in America have some type of managed care.

Although there are important differences among the different types of managed care plans, there are some similarities. All managed care plans involve an arrangement between the insurer and a selected network of health care providers, and they offer policy holders significant financial incentives to use the providers in that network.

2.1. Preferred Provider Organizations (PPOs)

One step over the managed care border is the Preferred Provider Organization. PPOs have made arrangements for lower fees with a network of health care providers. PPOs give their health plan members discounted fees to stay within that network. E.g. a visit to an in-network doctor might mean you would have to pay a small co-payment of $10 for each visit. However, if you choose to go outside the network, you would have to pay the entire bill up front, and then submit the bill to your insurance company for reimbursement. In addition you will have to meet the deductible, and pay a higher co-insurance rate.

With a PPO, you can refer yourself to a specialist without getting approval. As long as the specialist is an in-network provider, you enjoy the same low co-pay. If you use an out-of-network doctor you will still receive some coverage, but be prepared to pay a significantly larger portion of your bill, and also to fill out the claims forms yourself.

2.2. Point-of-Service Plans (POS)

Point-of-service plans are similar to PPOs, but they introduce the “gatekeeper”, or Primary Care Physician (PCP).

You'll need to choose your PCP from among the plan's network of doctors who might be a Family Practitioner, General Internist, or a Pediatrician. Your primary care doctor will serve as your regular doctor, managing your care and working with you closely. If your current physician is not on the list of POS "network" physicians, ask your friends, local medical groups and the POS for information to help you choose a primary care physician.

As a member of POS you may choose to go outside the contracted provider network for specialty or major medical care at any time. You usually must go through your Primary Care Physician, but you can still choose to refer yourself.

If your PCP refers you to a doctor who is out of the network, the plan should pick up most of the cost. But if you refer yourself out, then you usually have to pay deductibles and coinsurance, which means smaller reimbursement. You will probably have to deal with more paperwork, too.

In a nutshell, the advantage of a POS product is that it offers patient freedom of provider choice when seeking higher levels of care. The disadvantage is that a POS product is more expensive than the HMO plan (see next).

2.3. Health Maintenance Organizations (HMOs)

HMOs are the oldest form of managed care plan. HMOs are the least expensive, but least flexible type of health plan. They also tend to be geared more toward members of group plans than individuals. Before choosing an HMO, it is a good idea to talk to people you know who are enrolled in it. Ask them how they like the services and care given.

In an HMO your primary care physician (PCP) has a more important role. You will work with him much closer. He will provide most of your medical care, referring you to specialists and other health care professionals when needed.

With some HMOs, you will pay nothing when you visit its doctors. With other HMOs there may be a small co-payment, like $5 or $10, for various services.

Because HMOs receive a fixed fee for your covered medical care, it is in their interest to make sure you get basic health care for your problems before they become serious. That’s why HMOs have the best reputation for covering preventive care services and health improvement programs.

In exchange for a low co-payment (or sometimes no co-pay at all), low premiums and minimal paperwork, you must get a referral from your primary care physician before you want to see a specialist inside or outside of your HMO, or pay the entire cost of the visit yourself. If you can still pick up the phone, you'll probably need to get clearance before you can visit the emergency room. This is one way that HMOs can limit your choice, so pick your PCP carefully.

Which policy is best for you?

Insurance plans vary. There is no perfect plan, all plans have tradeoffs. Before choosing a plan, decide what is most important to you. Define your needs. Then get 3 quotes from 3 different insurance companies and compare them. See how many of your requested services are included in Policy#1, Policy#2, and Policy#3.

Remember that the most important service to be covered is hospitalization. If you are not covered for hospital care, then one sickness could cost you thousands of dollars, even hundreds of thousands of dollars.