Medical Insurance Plans

Traditional Indemnity Plans

An indemnity plan allows the employee to choose his or her own physician. The employee typically pays for the medical care and then files a claim form with the insurance company for reimbursement.

These plans use deductibles and coinsurance as well. A deductible is a fixed amount of medical expenses an employee pays before the insurance plan reimburses any more expenses. The deductible can range from $100 to $1,000 a year. Coinsurance is a percentage of medical expenses the employee pays, with the plan paying the remaining portion. A typical coinsurance amount is 20 percent, with the plan paying 80 percent of approved medical expenses.

Listed below are the most common types of insurance arrangements (indemnity plans) providing health care to groups of employees.

• A basic health insurance plan, covering hospitalization, surgery and physicians' care in the hospital.
• A major medical insurance plan, usually supplementing a basic plan by reimbursing charges not paid by that plan.
• A comprehensive plan, covering both hospital and medical care with one common deductible and coinsurance feature.

Preferred Provider Organizations

Preferred provider organizations (PPOs) fall between the conventional insurance and health maintenance organizations, and are offered by conventional insurance underwriters. A PPO is a network of physicians and/or hospitals that contracts with a health insurer or employer to provide health care to employees at predetermined discounted rates.

• They offer a broad choice of health care providers.
• Although there is no requirement for employees to use the PPO providers, there are strong financial reasons to do so.
• Because of the broader choice of providers, PPOs are more expensive than HMOs.
• PPOs may have less comprehensive benefits than HMOs, but the benefits usually can meet almost any need.
• PPO providers usually collect payments directly from insurers.

Health Maintenance Organizations

Health maintenance organizations (HMOs) provide health care for their members through a network of hospitals and physicians. Comprehensive benefits typically include preventive care, such as physical examinations, well baby care and immunizations, and stop-smoking and weight control programs.

The main characteristics of HMOs are as follows.

• The choice of primary care providers is limited to one physician within a network; however, there is frequently a wide choice for the primary care physician.
• There is no coverage outside the HMO network of hospitals and physicians.
• Costs are lower, due to limited choice. Physicians are encouraged to keep patients healthy; accordingly, they often are paid on a per capita basis, regardless of how much care the patient needs.

The employer prepays HMO premiums on a fixed, per employee basis. Employees do not have to apply for reimbursement of charges, but they may have small copayments for medical services.

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