Health insurance plans can be broadly divided into two basic categories: Fee-for-Service (FFS) and Managed Care Plans. Fee-for-Service insurance (FFS), which is sometimes referred to as an Indemnity plan, gives you the most amount of freedom to choose what doctors, hospitals, and other healthcare providers you want to use. They also tend to have the most expensive plan premiums.
Fee-for-Service (FFS) insurance was the predominant type of insurance consumers had up until the early 1990’s. At that time, employer-sponsored plans began shifting away from these policies because of rapidly rising healthcare inflation. Fee-for-Service (FFS) plans provide great benefits for the insured, but they give little incentive to hold down costs.
Managed care plans were designed to add a financial incentive into the healthcare system in order to control costs and provide the insured with products and services in a more efficient way. There are some compelling techniques that have been built into these plans that provide a strong monetary reward for the insurance policy holders, medical facilities and other healthcare professionals.
The most important example of a Managed Care incentive is that plan members stay within a “network” of doctors, hospitals, and other health care providers when choosing where to seek medical care. Using these providers may either be compulsory or offer the best financial incentives (i.e., the lowest out-of-pocket costs). In general, staying within your network will also reduce the paperwork burden for you when claims are to be paid.
Traditional Fee-for-Service (FFS) is also referred to as an Indemnity plan, these policies allow you the most freedom to choose almost any doctor or hospital you want. In return for this freedom of choice, you pay more for your insurance premiums. The typical plan will have a deductible that must be met before the insurance carrier will consider paying any of your charges. Once the deductible is satisfied, the insurance company then pays a portion of the approved charges (for example 80%) at their “usual and customary” rate. The balance left over is paid by the patient and is called the co-insurance. Finally, once you satisfy the plans out-of-pocket maximum, the insurance company will pay the entire charge. For many years, these plans were the most common form of health insurance.
A Preferred Provider Organization (PPO) combines selected elements of Indemnity Plans and Managed Care plans. You can still go to any doctor you want or choose any hospital for medical care, usually without first needing an approval from the insurance company. However, these plans give you a strong financial incentive to choose a provider within their designated list of network “preferred providers.” If you choose a provider outside of their preferred list, you will usually incur significantly higher out-of-pocket costs. You may also have to pay an annual deductible, co-insurance, or co-payments when seeking treatment. Premiums for these plans tend to be the highest of the managed care policies.
Point-of-service (POS) plans combine elements of Indemnity plans and Health Maintenance Organization (HMO) plans. Plan members have the option to self-direct their care at the “point-of-service.” Policy holders can choose to go through their primary care physician where the benefits work like an HMO. They can also use a PPO provider network and pay a deductible, co-payment, or co-insurance that is usually higher than what is paid when using HMO network providers. Lastly, you can choose a provider outside of the plan’s network, in which case you can expect to incur significant out-of-pocket costs for deductibles and co-insurance. Going out of network may also require that you pay up-front for the full cost of your medical care and then wait for your insurance company to reimburse you.
Exclusive Provider Organizations (EPOs) were authorized in 1992. They exhibit some aspects of a Health Maintenance Organization (HMO) and may even use HMO facilities to deliver patient services. Essentially, they are a group of healthcare providers that have entered into a written agreement with a health insurance company, third-party administrator, or employer group to provide healthcare services under the terms of a health insurance policy to their plan members. These plans usually have a limited number of provider choices and will not pay benefits if you seek care outside of the EPO network.
Health Maintenance Organizations (HMO) are corporations established to provide members with curative and preventive medical services within defined financial, geographical, and professional limits. There are several types of HMO models: Group, Individual Practice Association (IPA), Staff Model, and Network Model. In exchange for low or no co-payments and minimal paperwork when seeking medical care, members are required to stay within their network of providers and only go to a specialist doctor when referred by their “gate keeper” or primary care physician. Although these health plans may restrict access to care, they have been the most successful at holding down healthcare inflation.