Merritt Personal Lines Manual: Types of Health Insurance Policies
The terms fee-for-service and managed care appear just about everywhere. The specific kinds of managed care plans -- health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans -- are also fairly common.
Both fee-for-service and managed care plans cover an array of medical, surgical and hospital expenses. Most offer some coverage for prescription drugs; and some even include coverage for dentists and other providers. But there are important differences to understand about each kind of plan.
The rising cost of health care over the past 25 years -- largely shouldered by business -- has driven many of the problems in the healthcare system.
Fee-for-service coverage generally assumes that a medical provider (usually a doctor or hospital) will be paid a fee for services rendered. The term refers to the way doctors are paid...regardless of who pays. Paying cash -- that is, unreimbursed out-of-pocket expenses -- for medical treatment is a fee-for-service arrangement. However, most people don't pay cash for their medical care.
Traditional health insurance -- what insurance companies call indemnity coverage -- is a fee-for-service arrangement. Until the early 1980s, most people received health coverage through a traditional indemnity or fee-for-service plan. Under this type of plan, the insurance company pays all or part of the bill for any doctor, hospital or other health care provider that the insured may choose.
With traditional insurance, the insured is free to visit the doctor of his or her choice. The insured can change to another doctor at any time for any reason. And the insured can use any hospital or licensed medical facility the insured chooses. After you've been treated, you or your doctor submits a claim to your insurance company for reimbursement. You will only receive reimbursement for the covered medical expenses that are listed in your plan.
Services that are covered under your policy are generally reimbursed for some -- but not all -- of the cost. Many policies pay 50, 70 or 80 percent of the costs, depending on the type of service.
With some variation, fee-for-service policies reimburse bills for a percentage of a reasonable service charge. (This amount is derived by the prevailing cost of a service in a geographic area.) The portion of the covered medical expenses that you pay, the other 20 percent, is called co-insurance.
Sometimes a doctor will charge more than a reasonable amount for a service. If this is the case, you'll end up paying the difference out of your own pocket.
Example: If the reasonable charge for a service is $100, your insurer will probably pay $80 and you would pay $20. But if the doctor charged $105, you would have to pay $25.
Many fee-for-service plans pay hospital expenses in full, so be sure to check with your plan provider.
Deductibles are the amount of the covered expenses that you must pay each year before your insurer will reimburse you. These can range from as little as $100 to $300 per year per person to $500 or more per family. Generally, the higher the deductible, the lower the premiums, which are the monthly, quarterly or annual payments for the insurance.
Most policies have an out-of-pocket maximum -- when your covered expenses reach a certain amount in a given calendar year, a reasonable fee for the benefits that are covered on your plan will be paid in full by your insurer and you no longer pay the co-insurance. However, if your doctor bills you more than the reasonable charge, you may still have to pick up some of the tab.
In addition to the out-of-pocket maximum, many policies place lifetime limits on benefits. When shopping for a plan, it's smart to look for a policy whose lifetime limit is at least $1 million. If the limit is much lower than this, you could run through the coverage if you had major health problems for several years.
