What is a Health Plan?

A health plan is a binding contract between the insured and insuring company to pay for pay for the costs associated with the insured's medical care.

Making a choice

Choosing the right health plan for you and your family could be quite confusing after being confronted with a variety of options such as Indemnity Plan, HMOs, and PPOs. Although there is no one "best" plan, there are some plans that will be better than others for you and your family's health needs. Plans differ, both in how much you have to pay and in how easy it is to get the services you need.

Before shopping for a health plan, the most important aspect you must consider is coverage. For instance, emergency care is included in most health plans, it does not mean that complete coverage is offered. Choosing a health plan is all about finding the kind of coverage that is most beneficial to you.

Indemnity Plan

An Indemnity Plan, also called fee for service plan, a traditional form of health coverage in the USA. With this type of coverage, you (or your employer) pay a monthly premium to an insurance company. After you see a physician or other health provider, you send the bill to the insurance company, which pays a percentage of the medical fee for covered services.

The insurance company usually pays 80 percent and the insured pays the remaining 20 percent (referred to as a co-payment or the coinsurance). If the provider (hospital) charges more than the coverage, the insurance company deems this as "Usual and Customary Charge" for such services. You, as the insured, will then be responsible for the difference as well as the co-payment.

This health plan, though the most expensive, offers you the greatest level of freedom in choosing a physician, hospital or any other health provider.

Health Maintenance Organization (HMO)

The HMOs are the oldest form of managed care plan. HMOs offer members a range of health benefits, including preventive care, for a set monthly fee.

HMOs will give you a list of doctors from which to choose a primary care doctor. This doctor coordinates your care, which means that generally you must contact him or her to be referred to a specialist.
With some HMOs, you will pay nothing when you visit doctors. With other HMOs, there may be a co-payment of $5 or $10, for various services.

If you belong to an HMO, the plan only covers the cost of charges for doctors in that HMO. If you go outside the HMO, you will pay the bill.

Point-of-Service (POS) Plan

Many HMOs offer an indemnity-type option known as a POS plan. The primary care doctors in a POS plan usually make referrals to other providers in the plan. However, in a POS plan, members can refer themselves outside the plan and still get some coverage.

If the doctor makes a referral out of the network, the plan pays all or most of the bill. If you refer yourself to a provider outside the network and the service is covered by the plan, you will have to pay coinsurance.

Preferred Provider Organization (PPO)

A PPO is a form of managed care closest to an indemnity plan. A PPO has arrangements with doctors, hospitals, and other providers of care who have agreed to accept lower fees from the insurer for their services. As a result, your cost sharing should be lower than if you go outside the network. In addition to the PPO doctors making referrals, plan members can refer themselves to other doctors, including ones outside the plan.

If you go to a doctor within the PPO network, you will pay a co-payment (a set amount you pay for certain services-say $10 for a doctor or $5 for a prescription). Your coinsurance is based on lower charges for PPO members.

If you choose to go outside the network, you will have to meet the deductible and pay coinsurance based on higher charges. In addition, you may have to pay the difference between what the provider charges and what the plan will pay.