Basic facts about many of the different types of health insurance plans that your loved one may want to consider.

Fee-For-Service Insurance

While they may require more out-of-pocket costs than other health insurance policies, fee-for-service plans will offer your loved one the most choices of doctors and hospitals. Your loved one will be able to choose any doctor he or she wishes, change doctors at any time, and go to any hospital in any part of the country. However, some medical services may be limited or not covered at all. Make sure that your loved one’s policy covers most or all of the services that he or she is likely to need.

With fee-for-service, the insurer pays only part of your loved one’s doctor and hospital bills. Your loved one pays:

• A monthly fee or premium.
• A certain amount of money each year, known as the deductible, before insurance payments begin. In a typical plan, the deductible might be $250 for each person in a family, with a family deductible of $500 when at least two people in the family have reached the individual deductible. The deductible requirement applies each year of the policy. Also, not all health expenses count toward this deductible, only those covered by the policy. Check the insurance policy to find out which services are covered.
• After your loved one has paid his or her deductible amount for the year, he or she shares the bill with the insurance company. For example, your loved one might pay 20 percent while the insurer pays 80 percent. Your loved one’s portion is called coinsurance.

Most fee-for-service plans have a “cap,” the maximum amount that your loved one will have to pay for medical bills in any one year. The cap is reached when out-of-pocket expenses (for deductible and coinsurance—not the monthly premium) total a certain amount. It may be as low as $1,000 or as high as $5,000. Then the insurance company pays the full amount in excess of the cap for items that the policy covers.

To receive payment for fee-for-service claims, your loved one may have to fill out forms and send them to his or her insurer. Sometimes the doctor or hospital will handle this process. Your loved one must keep receipts for drugs and other medical costs, and he or she is responsible for keeping track of medical expenses.

There Are Two Kinds Of Fee-For-Service Coverage

• Basic protection pays toward the costs of a hospital room and care while in the hospital. It covers some hospital services and supplies, such as X-rays and prescribed medicine. Basic coverage also pays toward the cost of surgery—whether it is performed in or out of the hospital—and for some doctor visits.
• Major medical insurance takes over where basic coverage leaves off. It covers the cost of long-term, expensive illnesses or injuries.

Some policies combine basic and major medical coverage into one plan. This is sometimes called a “comprehensive plan.” Check your loved one’s policy to make sure he or she has both kinds of protection.

What Is A Customary Fee?

Most insurance plans will pay only what they call a reasonable and customary fee for a particular service. If your loved one’s doctor charges $1,000 for a hernia repair while most doctors in your area charge only $600, your loved one will be billed for the $400 difference. This is in addition to the deductible and coinsurance he or she would be expected to pay. To avoid this additional cost, your loved one should ask his or her doctor to accept the insurance company’s payment as full payment, or shop around to find a doctor who will.

Questions To Ask About Fee-for-Service Insurance

• How much is the monthly premium?
• What will your loved one’s total cost be each year?
• What does the policy cover? Does it cover prescription drugs, out-of-hospital care, or home care? Are there limits on the amount or the number of days the company will pay for these services? The best plans cover a broad range of services.
• Is your loved one currently being treated for a medical condition that may not be covered under his or her new plan? Are there limitations or a waiting period involved in the coverage?
• What is the deductible? Often, your loved one can lower his or her monthly health insurance premium by buying a policy with a higher yearly deductible.
• What is the coinsurance rate? What percent of medical bills will your loved one have to pay?
• What is the maximum out-of-pocket expense per year? How much would it cost your loved one directly before the insurance company would pay everything else?
• Is there a lifetime maximum cap the insurer will pay? The cap is an amount after which the insurance company won’t pay anymore. This is important to know if your loved one has an illness that requires expensive treatments. 

Health Maintenance Organizations

Health maintenance organizations (HMOs) are prepaid health plans. As an HMO member, your loved one pays a monthly premium. In exchange, the HMO provides comprehensive care for your loved one and family, including doctors’ visits, hospital stays, emergency care, surgery, lab tests, X-rays, and therapy.

The HMO arranges for this care either directly in its own group practice and/or through doctors and other health care professionals under contract. Usually, your loved one’s choices of doctors and hospitals will be limited to those that have agreements with the HMO. However, exceptions may be made in case of emergencies or for other medical necessities.

Your loved one may be charged a small fee or “co-payment” for different services, such as $5 for a doctor’s visit or $25 for hospital emergency room treatment. Your loved one’s total medical costs will likely be lower and more predictable in an HMO than with fee-for-service insurance.

HMOs receive a fixed fee for covered medical care and it is in their interest to make sure your loved one gets basic health care for problems before they become serious. HMOs typically provide preventive care, such as office visits, immunizations, mammograms, and physicals. The range of covered services varies, so it is important to compare available plans. Some services, such as outpatient mental health care, often are provided only on a limited basis.

HMOs do not require claim forms for office visits or hospital stays. Instead, members present a card at the doctor’s office or hospital. However, in an HMO you may have to wait longer for an appointment than you would with a fee-for-service plan.

In some HMOs, doctors are salaried and they all have offices in an HMO building at one or more locations in your community as part of a prepaid group practice. In others, independent groups of doctors contract with the HMO, and your loved one can select a doctor from a list of participating physicians.

In almost all HMOs, your loved one is either assigned or he or she chooses one doctor to serve as his or her primary care doctor. This doctor monitors your loved one’s health and provides most of your loved one’s medical care, referring him or her to specialists and other health care professionals as needed. Your loved one usually cannot see a specialist without a referral from his or her primary care doctor, which is one way that HMOs can limit your loved one’s choices.

Questions To Ask About HMOs

Before choosing an HMO, it is a good idea for your loved one to find out if other members have been satisfied with the quality of its care and services. You should also gather some basic information about the plan itself.

• How hard is it to change doctors?
• How are referrals to specialists handled?
• Is it easy to get appointments? How far in advance must routine visits be scheduled?
• What arrangements does the HMO have for handling emergency care?
• Does the HMO offer all of the services your loved one may need? What preventive services are provided?
• Are there limits on medical tests, surgery, mental health care, home care, or other support?
• What if your loved one needs a special service not provided by the HMO?
• What is the service area of the HMO? Which facilities in your loved one’s community serve HMO members?
• How convenient to your loved one’s home and workplace are the doctors, hospitals, and emergency care centers that make up the HMO network?
• What happens if your loved one is out of town and needs medical treatment?
• What will the HMO plan cost? What is the yearly total for monthly fees? Are there co-payments for office visits, emergency care, prescribed drugs, or other services?

Preferred Provider Organizations

A preferred provider organization (PPO) is a combination of traditional fee-for-service plans and an HMO. Like an HMO, there are a limited number of doctors and hospitals to choose from. If your loved one uses those providers (called “preferred” or “network” providers), most of his or her medical bills will be covered.

When your loved one goes to doctors in the PPO, he or she presents a card and does not have to fill out forms. Usually there is a small co-payment for each visit. For some services, your loved one may have to pay a deductible and coinsurance.

As with an HMO, a PPO requires that your loved one choose a primary care doctor to monitor his or her health. Most PPOs cover preventive care. This usually includes visits to the doctor, immunizations, and mammograms.

Unlike an HMO, however, in a PPO, your loved one can choose to use doctors who aren’t part of the organization and still receive some coverage. At these times, he or she will pay a larger portion of the bill (and also fill out the claims forms). Some people like this option because even if their doctor isn’t a part of the network, they don’t have to change doctors when they join the PPO.

Questions To Ask About PPOs

• Who are the doctors in the PPO network?
• Where are they located?
• How are referrals to specialists handled?
• What hospitals are available through the PPO? Where is the nearest hospital in the PPO network?
• What arrangements does the PPO have for handling emergency care?
• What services are covered? What preventive services are offered?
• Are there limits on medical tests, out-of-hospital care, mental health care, prescription drugs, or other important services?
• What will the PPO plan cost? How much is the premium? Is there a per-visit cost for seeing PPO doctors or other types of co-payments for services?
• What is the difference in cost between using doctors within the PPO network and those outside it?
• What is the deductible and coinsurance rate for care outside of the PPO?
• Is there a limit on out-of-pocket expenses?

Medicare

Medicare is the federal health insurance program that covers Americans age 65 and older and those with certain disabilities. If your loved one is eligible for Social Security or Railroad Retirement benefits and is age 65, he or she automatically qualifies for Medicare, as does his or her spouse.

Medicare has two parts: hospital insurance, known as Part A, and supplementary medical insurance, known as Part B. Medicare, Part A is free, but your loved one must pay a premium for Part B.

Medicare will pay for many of your loved one’s health-care expenses, but not all of them. In particular, Medicare does not cover most nursing home care, prescription drugs, or long-term care services in the home. There are also special rules and restrictions that apply if your loved one has employer group health insurance.

For further information about Medicare coverage—and your loved one’s eligibility for benefits—contact his or her local Social Security office.

Medigap

Some people who are covered by Medicare buy private insurance, called “Medigap,” to pay for medical bills that Medicare doesn’t cover. Some Medigap policies cover Medicare’s deductibles; most pay the coinsurance amount. Some also pay for health services not covered by Medicare.

Medicaid

Medicaid provides health care coverage for some low-income people who could not otherwise afford it. This includes people who are eligible because they are aged, blind, or disabled, or certain people in families with dependent children. Medicaid is a Federal program that is operated by the states, and each state decides who is eligible and the scope of health services provided.

Disability Insurance

Disability insurance replaces income lost if your loved one has a long-term illness or injury and cannot work. This is an important type of coverage for working-age people to consider. Some employers offer group disability insurance and this may be one of the benefits where your loved one works. Or he or she might be eligible for government-sponsored programs that provide disability benefits. Many different kinds of individual private policies also are available.

Note: Disability insurance doesn’t cover the cost of rehabilitation if your loved one is injured. Your loved one should check his or her major medical insurance to see if it covers rehabilitation services.

Hospital Indemnity Insurance

This insurance offers limited coverage. It pays a fixed amount for each day, up to a maximum number of days, and it may be used for medical or other hospital expenses. Usually, the amount your loved one receives will be less than the cost of a hospital stay.

Some hospital indemnity policies pay the specified daily amount even if your loved one has other health insurance. Others may coordinate benefits, so that the money your loved one receives does not equal more than 100 percent of the hospital bill.

Long-Term Care Insurance

Long-term care insurance is designed to cover the costs of nursing home care, which is usually not covered by health insurance except in a very limited way. Medicare covers very few long-term care expenses. There are many plans and they vary in costs and services covered, each with its own limits.

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Adapted from Checkup On Health Insurance Choices, AHCPR Publication No. 93-0018, developed by the United States Agency for Health Care Policy and Research.