Consumer education lesson: A look at health insurance

What's New, Jan/Feb 1999

NOT LONG AGO, JEREMY Saylor of Fullerton, California, ripped cartilage in his knee while surfing. "I needed arthroscopic surgery, and it costs a lot of money," says Jeremy, who receives coverage through a parent's health insurance plan. "Insurance made things a whole lot easier."

Like Jeremy, if you injure yourself or get sick, chances are that a hefty portion of your medical bill will be paid for with health insurance. In fact, as a student, you are hopefully covered under a parent's plan until you finish high school or college. Regardless of how you are covered now, a basic understanding of health insurance will help you in the future when it comes time to choose a plan for yourself.

Individual and Group Insurance

You can get health insurance two ways. Most Americans receive health insurance through their jobs. This is called group insurance. For those who don't receive coverage from an employer, or are self-employed or unemployed, individual insurance can be purchased. Most people prefer coverage through a group plan because firms usually pay part of the premium, and the remainder is usually deducted from each employee's paycheck.

Fee-for-Service/Indemnity

There are two broad categories of insurance in the U.S.-fee-forservice and managed care. Feefor-service health plans, also called indemnity plans, pay a fee to a medical provider for each service rendered to the patient. For instance, let's say you had to go to the hospital for an x-ray. In that case, the hospital submits a claim to your insurance company and then the company pays the hospital a fee for the service.

Under a Fee-for-Service plan, you typically pay a deductible, the amount you pay each year (usually $250 or more) before your insurance company begins to reimburse you for covered services.

One of the most popular features of Fee-for-Service plans is that they allow you to seek care from the doctor or hospital of your choice. In exchange for this flexibility, you generally pay a little more for this type of coverage.

Managed Care

The second category of health insurance is managed care. Today, about 85 percent of all U.S. employees are enrolled in a managed care plan. There are several different types of plans, each varying in the degree of choice given to patients.

In a Health Maintenance Organization (HMO), you are usually required to select a primary care physician, a personal doctor who is responsible for coordinating your care. When you receive medical care, you typically have to make a co-payment. A co-payment is a fixed charge-usually about $10 or $15 for an office visit or $100 for hospitalization. In exchange for these relatively low out-of-pocket expenses, HMO members must seek care within their network of providers. If you want to see a specialist, you need a referral from your primary care physician.

The second type of managed care plan is called a Point-ofService (POS) plan, which shares features of HMOs and Fee-forService plans. If you seek care within your network of providers, you make only a modest co-payment as you would in an HMO. If you get care outside the network, you typically pay deductibles and co-insurance as you would in a Fee-for-Service plan.

The third type of managed care plan is called a Preferred Provider Organization (PPO). In a PPO, covered services are subject to deductibles and co-insurance. However, your co-insurance payments are lower if you seek coverage within the PPO's network of providers.

A key characteristic of most managed care plans is their focus on prevention. For instance, many plans sponsor programs to help members stop smoking or lose weight in the hope that these members will lead healthier lives and require less medical care.

No matter what type of health care coverage you prefer, the key is not to leave yourself uninsured because medical care can be very expensive.

Excerpted from Next Generation: Insuring Your Future, a video-based program from the Life and Health Insurance Foundation (LIFE). Request a free copy by fax (800/358-5218) or on the web (www.vpw.com).