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health insurance coverage
health care coverage

Types of Coverage

The health insurance system is somewhat fractured, and there are many ways that coverage is obtained and many ways that financial coverage is designed.

Coverage is provided by employers, unions, state and federal programs, and by individuals buying for themselves and families. Most associations gave up trying to do health insurance programs years ago because the cost of the plans progressively went up and up and out of control. This was the result of "adverse selection" in which the least healthy members were more inclined to join and the healthier were less likely to do so.

There are various ways that medical care is financed. Not all are available in all areas. Most plans available for individuals to buy are the PPO plan. Generally, in the PPO plan, you can go to any medical provider anywhere, and have covered expenses paid for by the plan. You have less out-of-pocket expense if you use providers who have joined the claims network. In many areas, most providers join most networks. It's usually easy to stay in-network.

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Individual HMO

The Health Maintenance Organization (HMO) can take different forms and have different rules. Generally, it is a pre-paid type of plan, not a reimbursement of expenses incurred, known as indemnity. In the HMO structure, a group of medical providers, in association with a financial operation that collects premiums and provides administration, promises to provide care for the subscriber in return for periodic payment of a premium. So unless there is a need to pay for outside treatment, e.g., in an emergency, there is no reimbursement for expenses incurred, just a providing of medical care as promised in the evidence of coverage agreement.

The physicians in the HMO could be salaried employees of a clinic or employees/partners of a group practice (a Staff HMO or Group HMO) or they could be independent providers who run their own businesses (an IPA or Network model). The HMO may be dedicated to the HMO business alone or could be organized by an insurance company that provides other forms of insurance as well. The staff-model HMO may own the offices, equipment, and buildings and hire additional providers such as therapists and pharmacists.

In the IPA or Network model, there is an HMO contract between the providers and the HMO operator instead of employment by a clinic. The independent physicians who are primary care doctors may be paid on a "capitation" basis, i.e., paid a flat amount for each covered insured who designates that physician as the primary care doctor.

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Unlike the Staff-model HMO, if you buy a Group, IPA, or Network HMO plan, you will not have to change doctors if your doctor(s) have joined the HMO. However, HMO plans are not available in many areas, and in those areas where they exist, they are mostly available only for employers to buy for employees.

Apart from HMO's, all other health insurance is a form of indemnity coverage, i.e., insurance that reimburses the insured, or pays direct to the medical provider, for medical expenses incurred. The insured receives medical care from independent providers and a health insurer pays the bills incurred according to the terms of the insurance contract.

Because HMO's typically do not own hospitals, an HMO usually combines a pre-paid arrangement with the physician group plus indemnity coverage for inpatient hospital care and any outpatient care not provided under the pre-payment arrangement.

The HMO takes various forms, but generally, there is no access to specialists unless a referral is made by a primary care physician. The idea is to give more control to the insurer and the hope is that it will stop insureds wasting money by ignorantly seeing the wrong specialists along with other cost saving measures. The HMO has developed into a number of forms and may be for a specific group of salaried physicians or may be organized by a health insurance company utilizing independent providers as PPO coverage does.

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Indemnity Health Insurance, PPO

Indemnity health insurance takes two major forms. In the original form, now not as common, there is no claims network, and nothing is pre-agreed between the insurance company and any medical providers. For any charges incurred by the insured/patient, it is up to the insured to file the claim with the health insurance company. Disputes can arise between the provider and the insurer after the medical services are performed as to what is a fair and reasonable charge, often called "usual and customary".

The insured can be stuck in the middle and expected to pay the difference. Because of the inefficiency of the process, such health insurance plans have higher premiums and are not very popular. This form of coverage is often called indemnity to distinguish it from the PPO, although they are both an indemnification in contrast to a pre-paid plan.

In order to avoid the problems that occur in a simple indemnity situation, and to streamline the claims process, insurance companies contract with medical providers so disputes are minimized and providers can file claims instead of patients. This is called a "preferred provider organization" (PPO). There is a pre-arranged protocol for medical providers to file claims so patients do not have to. The reimbursement for each medical procedure is also pre-agreed. The list of doctors, hospitals, laboratories, etc., is called a "network, hence the term "PPO network". Typically, the health insurance company will still pay for claims from providers not in the network, but with a higher out-of-pocket cost to the insured. Often, the out-of-network deductible and coinsurance are double the in-network amounts.

There is another variation in indemnity health insurance, the "exclusive provider organization" (EPO). There is a network, but the health insurer will not cover any expenses incurred by non-network medical providers, i.e., no out-of-network coverage. This form is also not as popular as the PPO, which has the most flexibility of all.

Typically, there are more cost control mechanisms in the HMO than the PPO and because of its nature, the indemnity will have much less. Consequently, for similar benefits, the health insurance quote for an HMO plan will generally be lower than that for a PPO or indemnity health insurance plan.

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