What are the different types and categories of Health Insurance Plans?
The types and categories of plans below aren’t all necessarily directly comparable – in fact some are complimentary. Since the terms below are generally used to describe broad subsets of available plans, we’ve lumped them all together here.
Many types of health insurance are differentiated by how strictly they negotiate with and control their provider networks. A ‘provider’, in this context, could be a physician or physician group, a therapist or therapy clinic, a hospital, a hospital chain, a pharmacy, or a diagnostic service provider (ie lab, radiology, etc). A major insurance company, such as Blue Cross, will negotiate with a provider, such as a hospital network, to agree on included and excluded benefits as well as allowed amounts for and different bundles of services. Depending on the geographic market, either the insurance company or the provider may have leverage to negotiate favorable terms. Generally speaking, however, primary care and other providers with less leverage than hospital chains often face a ‘take it or leave it’ offer from the insurance companies and must accept low allowed amounts if they want to participate in the insurance plan’s network. If you see an out of network provider for emergency services, all plans must cover those services, but you may get additional bills directly from the provider that you wouldn’t ordinarily get from an in network provider.
Health Maintenance Organization (HMO) Plans
HMO’s generally have the tightest restrictions on which providers members may use. Members must see a primary care provider within the network, and if a specialist is needed, the in network PCP will refer to an in network specialist. Generally, an HMO will only pay out of network providers for emergency services.
Preferred Provider Organization (PPO) Plans
In a PPO, you can visit any doctor within or outside your network without a referral; BUT, if you use an out of network provider, not only will you have to pay all fees out of pocket (up to your out of network deductible); you will also usually have to pay the out of network provider’s Provider Charges, which are often much higher than the negotiated Allowed Charge for a give service.
Point of Service (POS) Plans
In a POS plan, you choose your primary care provider from their list of in network providers, and see them prior to being referred to a specialist, when needed. You may be referred to an out of network specialist, but if you are, you’ll have higher out of pocket expenses.
High Deductible Health Plans/Health Savings Accounts (HDHP/HSA’s)
HDHP/HSA’s are a combination of a health insurance plan (usually a PPO) with a higher than usual deductible, but other attributes so that the maximum OOP and deductible were the same, and a healthcare specific savings account that can be populated with pre-tax funds. Funds from your HSA can be used for qualified healthcare related services and products, including wellness related products and many over the counter (OTC) medications. The general idea behind HSA’s is that a person would contributed to their HSA so that they’d have a full year’s deductible in savings, thus minimizing the financial impact of a bad year where they had a bad accident, condition or illness., HSA’s stay with an employee as they move from employer to employer and into retirement, even if a future employer doesn’t offer HSA’s. They are a ‘use it or keep it’ plan, and can carry over balances year to year and can grow indefinitely. Disciplined individuals can start HSA’s early in life and save an very significant amount of money, taking advantage of compounding interest, to apply to healthcare related expenses in retirement.
Flexible Spending Accounts or Flexible Spending Arrangements (FSA’s)
FSA’s are similar to HSA’s in that they allow the savings of pre-tax income to use for healthcare related expenses, except that they have to be set up and administered by an employer, and have no carryover from year to year or upon leaving that company; they are a ‘use it or loose it’ plan. This makes them effective for predictable and highly likely expenses such as monthly health insurance premiums or services and products related to chronic conditions.
Health Reimbursement Accounts, or Health Reimbursement Arrangements (HRA’s)
HRA’s are similar to FSA’s, in that they’re administered by employers and used for qualified medical expenses up to a fixed dollar amount each year. They’re different from FSA’s in that they reimburse after the fact; and that unused amounts roll over from year to year.
Direct Contribution Plans
Employers who provide insurance generally pick which of the above plan types they’d like to provide to their employees. As the costs of health insurance continue to climb, however, more and more employers are choosing not to offer health insurance at all and are instead giving their employees a defined amount of money (sometimes different for individuals and families) that the employee then uses to buy their own health insurance on the private or public Exchange. These are known as Defined Contribution plans. The growing momentum toward Defined Contribution is similar to what employers went through 20-40 years ago with pension benefits. At one time it had been common to offer employees a pension, but as average lifetimes and employee turnover increased, employers had a more and more difficult time calculating how to pay for a defined future benefit, so they instead shifted to a defined contribution where they gave employees a set amount of money to invest in retirement plans outside the company’s control. The company could then predict and control costs, and employees had a retirement benefit that moved with them as they moved from job to job.
Health Plan Categories, or ‘Metal’ categories
Plans in the Exchange are primarily separated into Bronze, Silver, Gold or Platinum categories depending on the percentage the plan pays of the average overall cost of providing essential health benefits to members. The plan category you choose affects the total amount you’ll likely spend for essential health benefits during the year. The percentages the plans will spend, on average, are 60% for Bronze, 70% for Silver, 80% for Gold, and 90% for Platinum.
Qualified Health Plans (QHP’s)
A healthcare insurance plan that is certified by the Health Insurance Marketplace, provides essential health benefits, follows established limits on cost-sharing (like deductibles, co-pays, and OOP maximums), and meets other requirements.
Catastrophic Health Plans
QHP’s that require the individual to pay for all benefits up to the deductible except for 3 primary care visits per year. To qualify for a catastrophic plan you must be under 30yrs of age OR get a hardship exemption if you’re unable to afford other Bronze plans offered in the Exchange.
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