Basic types of health insurance plans

Health insurance programs have changed greatly in the past ten to fifteen years. The number of choices has escalated and newcomers to the world of health insurance can easily and quickly become confused.

Below is a listing and brief explanation of the most popular types of health insurance plans to help simplif your options.

HMOs (Health Maintenance Organizations)

After once experiencing explosive growth, HMOs have leveled off in popularity and numbers. Unlike most classic health care plans, HMOs issue rules on how doctors will operate (not surgically, but in business).

Often costing less than other plans, there are also typically restrictions on the types and extent of service available through the HMO.

PPOs (Preferred Provider Organizations)

Sometimes also called Participating Provider Organizations, PPOs, like HMOs, are primarily managed care programs, including doctors, hospitals, and other health care providers offering services at discounted rates and managed by an administrative body. Much like HMOs, you must stay "in the network" to take advantage of these services and their prices.

Seeing a physician or getting treatment at a hospital who or which is not part of the PPO usually means there is no insurance coverage or, at times, a modest reimbursement for "out of network" services is offered.

COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985)

Along with many other provisions, this legislation permits employees separated from their former employers to continue their former health insurance coverage for up to six months after termination or resignation. Whether you were covered by a traditional health insurance plan, HMO, PPO, or other program, you may be able to continue coverage until you secure another job or plan.

HSA (Health Savings Account)

This savings account allows you to add pre-tax dollars to the HSA to help medical costs if you have a High Deductible Health Plan (HDHP). At year end, unused money in your HSA can be carried over to the next year (unlike an FSA [see below]), which helps pay these higher deductibles.

FSA (Flexible Spending Account)

Usually part of a "Cafeteria Plan" (a health insurance program that allows you to choose which coverage options you prefer), an FSA allows you to put aside pre-tax dollars to pay that which your health insurance does not. For example, co-pays, typically between $5 and $20 per doctor or hospital visit, could be paid from your FSA.

Another common use is for health insurance plans that have limited or no dental or vision coverage. Instead of paying for uncovered treatment out of after-tax funds, you may use your FSA to meet these expenses with pre-tax dollars. Although very beneficial, you should try to budget or anticipate your annual costs carefully. Unlike an HSA, you cannot carry over unused dollars to the next calendar year.

Medicare and Medicaid

A U.S. government program for people age 65 and older, Medicare is administered by the Health and Human Services Administration. Medicaid is a similar and related program for individuals and families classified as "low income" after the government applies a "means" test. This program is a joint venture of the Federal and state governments, and is usually administered by individual states.

Classic, traditional health insurance plans

Including long-term providers, like Blue Cross Blue Shield, and many others, these plans offer a wide range of options from "major medical" types of programs (often involving an 80/20 or 50/50 split of expenses) to more extensive health insurance coverage involving smaller co-pays and other insured contributions.

How typical health insurance plans work

While an over-simplification, typical health insurance plans work in one of two primary ways. As you might imagine, there is often a high degree of difficulty trying to simplify a very complex and evolving system such as health insurance. But, here are the primary ways the process works.

Traditional health plans. Most health insurance companies agree to pay a stated amount for common medical procedures, including tests, diagnoses, nursing, surgery, etc.

Doctors and other medical personnel who choose to accept traditional health care plans also accept this payment level. Agreeing to these payment levels allows them to be part of the overall network of approved doctors and medical staff covered by these insurance companies.

HMOs, PPOs, and other managed health care plans. Medical personnel, doctors, nurses, testing facilities, hospitals become more like "employees" of the HMO. People insured by managed health care plans must use facilities and doctors who are part of the HMO, PPO, etc. network.

Only those procedures that are part of the managed care menu are permitted and authorized. These program types tend to be less expensive than traditional health plans with the "trade off" being the smaller universe of doctors and hospitals available to covered people.

See also: Health insurance FAQs