What are My Health Insurance Plan Choices?

health insurance plan typesPPO, POS, HMO, EPO, HDHP…

Hopefully, my last post  made clear that the first step in getting health insurance in the United States requires “qualifying” with one of three “groups”—employer-sponsored, government-sponsored, or “non-group” . Once “qualified”, you are now often free to choose one particular type of insurance plan over others being offered. Sometimes you have no health insurance plan choice because your employer or the government might only offer one type of insurance plan.

We, the individual Americans, often select our health insurance plans without even looking at the health insurance policy, which for many of us is not even easily accessible. It is one of the few contracts we enter into without having a lawyer look it over first, but then again, do we even have a choice to reject what is being offered? Even if we read it, would we understand the implications of the fine print detailing health coverage for diseases we might or might not get in the future? The quality of our health care is defined in minute detail in the legal contract that this health insurance policy represents.

What are these types of health insurance plans and why am I being offered different kinds? Over the years, insurance companies have created and tweaked multiple variations on health insurance products that suit HICUP member needs. Insurance companies want to maximize their profits. The government wants to reduce program costs. Under the present healthcare system in the U.S., health care providers have a financial interest to maximize profits and income. These new insurance products are not created with our best interest in mind. The insurance products outlined below represent what is on offer today. They have different price tags (i.e., premium costs) and offer different benefits and “cost sharing”.

In the beginning there were Traditional Indemnity Plans

In a traditional Indemnity health insurance plan (also called conventional plans), patients chose their own doctors and the insurance company reimburses a set portion of health care costs to any practicing health care provider (no network). In this type of insurance plan, the health care provider sets a price and the insurance company pays its part and you pay yours. Because this insurance product allows health care providers to charge what they want without effective market forces to contain them, this type of insurance product is all but history. Between 1988 and 2013, traditional indemnity plans went from 73% of employer-sponsored health insurance plans to less than 1% per the Kaiser Family Foundation.

Traditional Medicare functions like a traditional indemnity plan because most physicians in the U.S. accept Medicare insurance payment.  With over 37 million participants (in 2015), CMS (Centers for Medicare & Medicaid Services) is in a strong position to “encourage” health care providers to participate and accept Medicare reimbursements (some of the lowest insurance reimbursements for health care services and products in the United States).

Then came Managed Care

HMO, PPO, POS, and EPO

Managed care  came about in the following way:

  • To counter the control of rapidly increasing healthcare prices charged pricing by medical providers, our government encouraged individual insurance companies to directly negotiate with subsets (networks) of medical providers (divide and conquer) for prices that are lower than their asking prices in exchange for customers. This was supposed to create competition among doctors for patients and therefore bring down their outlandishly high prices.
  • To “encourage” insurance plan participants to stay in network, the insurance companies designed the plans with higher cost shares when the patient used out-of-network doctors. Participants are free to go to out-of-network medical providers, but their cost will be higher.
  • To eliminate financially lucrative, but medically unnecessary treatments and hospitalizations, the insurance companies required proof from medical providers that the medical condition warranted it before reimbursement was given.

When managed care was first applied in the early 1970’s, having an outside evaluator (insurance company) to judge the medical necessity of treatment served to keep health care providers “honest”. The managed care insurance plans available today include names like:

  • Health Maintenance Organization (HMO)
  • Preferred Provider Organization (PPO)
  • Point-of-service plan (POS)
  • Exclusive Provider Organization (EPO)

In each of the above, a “managed” care organization provides or arranges for healthcare services and products at reduced rates to a plan’s participants. These plans are offered in and out of the Health Insurance Marketplace for individuals and small business employees; in individual employer-sponsored health insurance plans across the country; and in various government-sponsored programs (Medicaid, Medicare Advantage).  Medicare Advantage (Part C) plans run by private insurance companies are most often Health Maintenance Organizations (HMOs) or Preferred Provider Organizations (PPOs). At 52% of covered workers in 2015 , the Preferred Provider Organization (PPO), is the most popular health insurance plan type per a Kaiser Family Foundation survey.

Details about the individual types of plans can be found on many other websites, so I am only going to describe a few important distinctions.

health insurance plan choices

I have classified the insurance plans above based on two criteria:

  • Gatekeeper requirement ( the primary care physician coordinates ALL reimbursed care )
  • Out-of-network reimbursement

Gatekeepers

When you get sick, the first thing you must do is assess your symptoms and seek medical attention. Which of the many types of medical doctors do you see first? Obviously, you would not go to a doctor who specializes in the heart if you have a pain in your foot. The most logical, first doctor to see would be your general practitioner. He has a general knowledge of the human body, can perform a basic medical examination, run some basic tests, and recommend any specialists (medical and non-medical) you might need if further health care is required. This first doctor you see is called the gatekeeper in the insurance world. For the gatekeeper to be most effective, he must:

  1. Actively work with the patient for “best” care
  2. Be up-to-date on the newest medical data
  3. Be free of financial self-interest (or financial pressure from his organization) when defining the course of treatment for you

When these criteria are not met, the role of the gatekeeper can be detrimental to “best“ health care delivery. If you belong to a health plan that requires a “gatekeeper” (e.g., HMO and POS), you should carefully consider the three criteria above. If you and a “gatekeeper” disagree on a course of action, make sure the “gatekeeper” explains (in plain English) why his recommendation is the best plan of action for you.

Out-of-Network Reimbursement

As described above, the creation of the healthcare “network” is designed to introduce competition among the medical providers and bring down their prices for medical services and products. Because the “network” is the foundation of managed care, it is important that it function in the following way:

  1. It must provide “best” care for all participants without conflicting financial incentives to limit care
  2. It must contain a minimum selection of medical providers in every specialty within a reasonable distance from its participants
  3. It must contain sufficient hospital and emergency health care services to meet the needs of all participants
  4. It must have an up-to-date and readily available list of all network medical providers and must be widely circulated (e.g., online in a central location known to all participants, 800 emergency telephone number to direct participants to appropriate network provider)
  5. It cannot contain out-of-network “surprises” (e.g., when you give your insurance card to a medical facility, it should be the responsibility of the facility to ensure all treatment are performed by in-network providers).

Do the above managed care insurance plan types deliver these out-of-network safeguards to individual Americans? For fully-insured health plans (not self-insured plans), some states have legislated that health insurance networks meet some of the requirements above. I was recently presented with a new dental plan that featured a money-saving network and upon calling all the local dentists in my dental plan, I discovered that none of them were signed up to this network.  My new network is a network on the open-enrollment paperwork only!  Because the network requirements above (controlled by insurance companies and employers) are not carefully regulated and monitored in most states, you are unfortunately on your own. Most people do not have the time to investigate network “details” when they are healthy let alone when they are sick. We simply pay the extra price these insurance plans create.

High-Deductible Health Plans (HDHP) and ACA Catastrophic Plans 

I have separated these two insurance plans from the rest of the managed care plans above because they are designed with a different intent. These insurance plans reduce the premium price to levels below the other “managed” care plans above by having the individual American spend his own money almost from the first dollar of health care.This is accomplished with higher deductibles. These plans are financially favorable to healthy people who do not use much costly medical care.

In the High Deductible Health Plan (HDHP), you must pay for all health care costs up to the deductible (minimum of $1300/single, $2600/family in 2016) every year before insurance pays a dime (except for certain preventive care procedures which are free to all Americans). In 2016, the maximum out-of-pocket for this plan is $6550/single, $13,100/family.  While most people “qualify” for the HDHP, the ACA Catastrophic Plan is more restrictive—you have to either be under the age of 30 or cannot find coverage for less than 8 percent of your income. . The minimum deductible is a higher ($6850/single, $13,700/family in 2016) and you are allowed three free primary care visits per year (not the case with the HDHP) along with the preventive care procedures which are free to all Americans.

Both the High-Deductible Health Plan (HDHP) and ACA Catastrophic Plans function like PPOs (and sometimes HMO, EPO, or POS plans) and, therefore, the participant benefits from in-network discounted rates. The ACA Catastrophic Plans came out of Obamacare (PPACA) and is not the same as the catastrophic coverage in Medicare Part D insurance or even catastrophic coverage before 2010.

Our government greatly encourages Americans to purchase these two high deductible health insurance plans by allowing them to be combined with Health Savings Accounts (HSAs), the 401K of medical savings accounts. The HSA is funded with pre-tax dollars (often with employer contribution), accumulates tax-free, can be invested, and is only taxed if used for other than medical costs. The other “managed” care plans are not allowed to have HSAs!

Medical Savings Accounts

In addition to the HSA mentioned above , other less tax-favorable medical savings accounts include the Flexible Spending Account (FSA) and the Health Reimbursement Account (HRA). The Archer Medical Savings Accounts (MSAs), which were replaced by HSAs, are now only found in grandfathered health plans and will not be discussed here.

The Bottom Line

Insurance companies are constantly fine tuning the types of health insurance plans they provide to individual Americans to minimize their costs and maximize their profits. With the exception of traditional (or conventional) Medicare, the vast majority of insurance plans are “managed care” plans (i.e., plans that define a network of medical providers). “Managed care” is a forty year experiment to bring affordability to heath care costs. Unfortunately, the plans outlined above will not accomplish this task because each new health insurance product (with appropriate government incentives) is designed to only decrease the insurance price tag (premium cost) and not the total cost of health care to the individual American. These plans, especially the high deductible varieties, decrease premium costs by passing more and more of the costs of being sick onto the individual American. These plans effectively pass the high inflationary health costs onto you, the individual American.

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