Choosing and Using a Health Plan
Changes and Choices
Health care in America is changing rapidly. Twenty-five
years ago, most people in the United States had indemnity insurance coverage. A
person with indemnity insurance could go to any doctor, hospital, or other
provider (which would bill for each service given), and the insurance and the
patient would each pay part of the bill.
But today, more than half of all Americans who have health insurance are
enrolled in some kind of managed care plan, an organized way of both providing
services and paying for them. Different types of managed care plans work
differently and include preferred provider organizations (PPOs), health
maintenance organizations (HMOs), and point-of-service (POS) plans.
You've probably heard these terms before. But what do they mean, and what are
the differences between them? And what do these differences mean to you?
The Big Picture
This article can help you make sense of your choices for getting health care
Even if you don't get to choose the health plan yourself, you still need to
understand what kind of protection your health plan provides and what you will
need to do to get the health care that you and your family need.
The more you learn, the more easily you'll be able to decide what fits your
personal needs and budget.
Choosing a Plan
What Are My Health Plan Choices?
Choosing between health plans is not as easy as it once was. 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 how easy
it is to get the services you need. Although no plan will pay for all the costs
associated with your medical care, some plans will cover more than others.
Almost all plans today have ways to reduce unnecessary use
of health care—and keep down the costs of health care, too. This may affect how
easily you get the care you want, but should not affect how easily you get the
care you need.
Plans change from year to year, so you should carefully consider each plan,
using the questions outlined in this booklet. If you get health insurance where
you work, you should start with your employee benefits office. Its staff should
be able to tell you what is covered under the plans available. You can also call
plans directly to ask questions.
Health insurance plans are usually described as either indemnity
(fee-for-service) or managed care. These types of plans differ in important ways
that are described below. With any health plan, however, there is a basic
premium, which is how much you or your employer pay, usually monthly, to buy
health insurance coverage. In addition, there are often other payments you must
make, which will vary by plan. In considering any plan, you should try to figure
out its total cost to you and your family, especially if someone in the family
has a chronic or serious health condition.
Indemnity and managed care plans differ in their basic approach. Put broadly,
the major differences concern choice of providers, out-of-pocket costs for
covered services, and how bills are paid. Usually, indemnity plans offer more
choice of doctors (including specialists, such as cardiologists and surgeons),
hospitals, and other health care providers than managed care plans. Indemnity
plans pay their share of the costs of a service only after they receive a bill.
Managed care plans have agreements with certain doctors, hospitals, and health
care providers to give a range of services to plan members at reduced cost. In
general, you will have less paperwork and lower out-of-pocket costs if you
select a managed care type plan and a broader choice of health care providers if
you select an indemnity-type plan.
Over time, the distinctions between these kinds of plans have begun to blur as
health plans compete for your business. Some indemnity plans offer managed
care-type options, and some managed care plans offer members the opportunity to
use providers who are "outside" the plan. This makes it even more important for
you to understand how your health plan works.
Besides indemnity plans, there are basically three types of managed care plans:
PPOs, HMOs, and POS plans..
With an indemnity plan (sometimes called fee-for-service), you can use any medical provider (such as a doctor and hospital). You or they send the bill to the insurance company, which pays part of it. Usually, you have a deductible—such as $200—to pay each year before the insurer starts paying.
Once you meet the deductible, most indemnity plans pay a
percentage of what they consider the "Usual and Customary" charge for covered
services. The insurer generally pays 80 percent of the Usual and Customary costs
and you pay the other 20 percent, which is known as coinsurance. If the provider
charges more than the Usual and Customary rates, you will have to pay both the
coinsurance and the difference.
The plan will pay for charges for medical tests and prescriptions as well as
from doctors and hospitals. It may not pay for some preventive care, like
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 will be 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.
Health Maintenance Organization (HMO). 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. There are many kinds of HMOs. If doctors are employees of
the health plan and you visit them at central medical offices or clinics, it is
a staff or group model HMO. Other HMOs contract with physician groups or
individual doctors who have private offices. These are called individual
practice associations (IPAs) or networks.
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, like $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. This is not the case
with point-of-service plans.
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. But 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.
Primary Care Doctors
Your primary care doctor will serve as your regular doctor, managing your care and working with you to make most of the medical decisions about your care as a patient. In many plans, care by specialists is only paid for if your are referred by your primary care doctor.
An HMO or a POS plan will provide you with a list of
doctors from which you will choose your primary care doctor (usually a family
physician, internists, obstetrician-gynecologist, or pediatrician). This could
mean you might have to choose a new primary care doctor if your current one does
not belong to the plan.
PPOs allow members to use primary care doctors outside the PPO network (at a
higher cost). Indemnity plans allow any doctor to be used.
Where Do I Get These Health Plans?
You may be able to get group health coverage—either indemnity or managed
care—through your job or the job of a family member.
Many employers allow you to join or change health plans once a year during open
enrollment. But once you choose a plan, you must keep it for a year. Discuss
choices and limits with your employee benefits office.
If you are self-employed or if your company does not offer group policies, you
may need to buy individual health insurance. Individual policies cost more than
Some organizations—such as unions, professional associations, or social or civic
groups—offer health plans for members. You may want to talk to an insurance
broker, who can tell you more about the indemnity and managed care plans that
are available for individuals. Some States also provide insurance for very small
groups or the self-employed.
Americans age 65 or older and people with certain disabilities can be covered
under Medicare, a Federal health insurance program.
In many parts of the country, people covered under Medicare now have a choice
between managed care and indemnity plans. They also can switch their plans for
any reason. However, they must officially tell the plan or the local Social
Security Office, and the change may not take effect for up to 30 days. Call your
local Social Security office or the State office on aging to find out what is
available in your area.
Medicaid covers some low-income people (especially children and pregnant women),
and disabled people. Medicaid is a joint Federal-State health insurance program
that is run by the States.
In some cases, States require people covered under Medicaid to join managed care
plans. Insurance plans and State regulations differ, so check with your State
Medicaid office to learn more.
A pre-existing condition is a medical condition diagnosed or treated before joining a new plan. In the past, health care given for a pre-existing condition often has not been covered for someone who joins a new plan until after a waiting period. However, a new law—called the Health Insurance Portability and Accountability Act—changes the rules.
Under the law, most of which goes into effect on July 1,
1997, a pre-existing condition will be covered without a waiting period when you
join a new group plan if you have been insured the previous 12 months. This
means that if you remain insured for 12 months or more, you will be able to go
from one job to another, and your pre-existing condition will be covered—without
additional waiting periods—even if you have a chronic illness.
If you have a pre-existing condition and have not been insured the previous 12
months before joining a new plan, the longest you will have to wait before you
are covered for that condition is 12 months.
To find out how this new law affects you, check with either your employer
benefits office or your health plan.
What Plan Benefits Are Offered?
Most plans provide basic medical coverage, but the details
are what counts. The best plan for someone else may not be the best plan for
you. For each plan you are considering, find out how it handles:
Physical exams and health screenings.
Care by specialists.
Hospitalization and emergency care.
Also ask about:
Care and counseling for mental health.
Services for drug and alcohol abuse.
Obstetrical-gynecological care and family planning
Ongoing care for chronic (long-term) diseases, conditions,
Physical therapy and other rehabilitative care.
Home health, nursing home, and hospice care.
Chiropractic or alternative health care, such as
Some plans offer members health education and preventive
care, but services differ.
Ask questions such as:
What preventive care is offered, such as shots for
What health screenings are given, such as breast exams and
Pap smears for women?
Does the plan help people who want to quit smoking?
What Is Most Important to Me in a Plan?
In choosing a plan, you have to decide what is most important to you. All plans have tradeoffs.
Ask yourself these questions:
How comprehensive do I want coverage of health care
services to be?
How do I feel about limits on my choice of doctors or
How do I feel about a primary care doctor referring me to
specialists for additional care?
How convenient does my care need to be?
How important is the cost of services?
How much am I willing to spend on premiums and other health
How do I feel about keeping receipts and filing claims?
You might also want to think about whether the services a
plan offers meet your needs. Call the plan for details about coverage if you
have questions. Consider:
Life changes you may be thinking about, such as starting a
family or retiring.
Chronic health conditions or disabilities that you or
family members have.
If you or anyone in your family will need care for the
Care for family members who travel a lot, attend college,
or spend time at two homes.
How Do I Compare Health Plans?
After you review what benefits are available and decide
what is important to you, you can compare plans. Many things should be
considered. These include services offered, choice of providers, location, and
costs. The quality of care is also a factor to think about.
Look at the services offered by each plan. What services are limited or not
covered? Is there a good match between what is provided and what you think you
For example, if you have a chronic disease, is there a special program for that
illness? Will the plan provide the medicines and equipment you may need?
Find out what types of care or services the plan won't pay for. These usually
are called exclusions.
Few indemnity and managed care plans cover treatments that are experimental. Ask
how the plan decides what is or is not experimental. Find out what you can do if
you disagree with a plan's decision on medical care or coverage.
What doctors, hospitals, and other medical providers are
part of the plan?
Are there enough of the kinds of doctors you want to see?
Do you need to choose a primary care doctor?
If you want to see a specialist, can you refer yourself or must your primary
care doctor refer you?
Do you need approval from the plan before going into the hospital or getting
Where will you go for care? Are these places near where you work or live?
How does the plan handle care when you are away from home?
No health insurance plan will cover every expense. To get a true idea of what
your costs will be under each plan, you need to look at how much you will pay
for your premium and other costs.
Are there deductibles you must pay before the insurance
begins to help cover your costs?
After you have met your deductible, what part of your costs
are paid by the plan?
Does this amount vary by the type of service, doctor, or
health facility used?
Are there co-payments you must pay for certain services,
such as doctor visits?
If you use doctors outside a plan's network, how much more
will you pay to get care?
If a plan does not cover certain services or care that you
think you will need, how much will you have to pay?
Are there any limits to how much you must pay in case of
Is there a limit on how much the plan will pay for your
care in a year or over a lifetime? A single hospital stay for a serious
condition could cost hundreds of thousands of dollars.
You can't know in advance what your health care needs for
the coming year will be. But you can guess what services you and your family
might need. Figure out what the total costs to your family would be for these
services under each plan.
How Do I Find Out About Quality?
Quality is hard to measure, but more and more information
is becoming available. There are certain things you can look for and questions
you can ask.
Whatever kind of plan you are considering, you can check
out individual doctors and hospitals. For doctors, see
"Tips on Choosing a Doctor."
Many managed care plans are regulated by Federal and State
agencies. Indemnity plans are regulated by State insurance commissions. Your
State Department of Health or insurance commission can tell you about any plan
you are interested in.
You can also find out if the managed care plan you are interested in has been
"accredited," meaning that it meets certain standards of independent
Some States require accreditation if plans serve special groups, such as people
in Medicaid. Some employers will only contract with plans that are accredited.
Several national organizations review and accredit plans and institutions. You
can contact these organizations to see if a plan you are considering, or an
institution in the plan, is accredited.
Another approach is to ask the plan how it ensures good medical care. Does the
plan review the qualifications of doctors before they are added to the plan?
Plans are supposed to review the care that is given by their doctors and
hospitals. How does the plan review its own services, and has it made changes to
correct problems? How does the plan resolve member complaints?
Some managed care plans survey members about their health care experiences. Ask
the plan for a report of the survey results.
Some plans and independent organizations are also beginning to produce "report
cards." These reports often include satisfaction survey results and other
information on quality, such as if a plan provides preventive care (for example,
shots for children and Pap smears for women) or if the plan follows up on test
results. Report cards may also include information on how many members stay in
or leave the plan, how many of the plan's doctors are board certified, or how
long you may have to wait for an appointment.
Report cards can only give you an idea of how a plan works and may not give a
full picture of a plan's quality. Ask plans if their activities have been
reported in report cards developed by outside groups (business or consumer
Also keep any eye out for magazine articles that rate health plans.
Finally, you can talk to current members of the plan. Ask how they feel about
their experiences, such as waiting times for appointments, the helpfulness of
medical staff, the services offered, and the care received. If there are
programs for your particular condition, how are the patients in it doing?
Choosing a Doctor
Your doctor will be your partner in care, so it is important to choose carefully
from the doctors available to you. In some managed care plans, you will
generally be limited to choosing from only certain doctors; in other plans, some
doctors may be "preferred," which means they are part of a network and you will
pay less if you use them. Ask your plan for a list or directory of providers.
The plan may also offer other help in choosing.
You can ask doctors you know, medical societies, friends, family, and coworkers
to recommend doctors. You may also contact hospitals and referral services about
doctors in your area.
Once you have the names of doctors who interest you, make sure they are
accepting new patients. Here's how to check doctors out:
Ask plans and medical offices for information on their
doctors' training and experience.
Look up basic information about doctors in the Directory of
Medical Specialists, available at your local library. This reference has
up-to-date professional and biographic information on about 400,000 practicing
You may also want to find out:
Is the doctor board certified? Although all doctors must be
licensed to practice medicine, some also are board certified. This means the
doctor has completed several years of training in a specialty and passed an
exam. Call the American Board of Medical Specialties at 800-776-2378 for more
Have complaints been registered or disciplinary actions
taken against the doctor? To find out, call your State Medical Licensing
Board. Ask Directory Assistance for the phone number.
Have complaints been registered with your State department
of insurance? (Not all departments of insurance accept complaints.) Ask
Directory Assistance for the phone number.
Once you have narrowed your search to a few doctors, you
may want to set up "get acquainted" appointments with them. Ask what charge
there might be for these visits, if any. Such appointments give you a chance to
interview the doctors—for example, to find out if they have much experience with
any health conditions you may have.