Traditional Indemnity Coverage

This type of insurance is often referred to as “fee-for-service.” It works a lot like auto insurance: an employee pays an amount up front – a deductible – and then the insurance company pays the majority of the bill. Under this type of health coverage, an employee has complete freedom in choosing the doctors and hospitals they want to see. The employee can refer to any specialist without getting permission. However, the policy will still have a list of limitations they need to refer to.

The fee-for-service plan may involve some higher out-of-pocket expenses than other types of health insurance. Often there will be a deductible (for example, $200) before the insurance company starts paying. Once the deductible is satisfied, the insurance company pays a portion (typically about 80 percent) of the medical bills and the employee will be responsible for the remaining portion (typically about 20 percent). The employee may have to pay the bill up front and then submit a claim to the insurance company, or their doctor may be willing to bill the insurance company directly.

This type of plan will include an out-of-pocket limit. Once the employee pays that much out of their own pocket, the insurance company pays the majority of the charges at 100%.

Preferred Provider Organization (PPO)

A PPO plan is a type of “managed care.” It is simply a network of doctors and hospitals that have agreed to charge the insurance company a discounted amount for the care they provide. In return, the insurance company directs members to use the network doctors and hospitals by increasing the benefits to the member for doing so. However, an employee is free to see any doctor or hospital they choose and they can refer themself to a specialist. The employee makes the decision about what care to receive and where at the point in which they are seeking medical care.

PPO plans work similarly to traditional indemnity plans, in that they will have a deductible that has to be satisfied first. Once that occurs, the insurance company will typically pay 80 or 90 percent of the bill if the employee receives care inside the PPO network. If they receive care outside of the network the insurance company will probably pay 60 or 70% of the bill, and the employee will be responsible for the remaining balance.

The PPO includes an out-of-pocket limit. Once they’ve paid that much out of their own pocket, the insurance company pays the majority of the charges at 100% (there may be a separate PPO and non-PPO amount).

The one additional feature of a PPO plan is a physician’s visit copay. This is usually a fixed amount -- $10 or $15 that you pay for each visit to the PPO doctor’s office ($15 or $20 for a non-PPO doctor). The insurance company will typically pay 100 percent of the remaining cost of the visit.

Point-of-Service (POS)

Point-of-service plans are similar to PPOs, but they bring in the role of gatekeeper, or Primary Care Physician (PCP). The employee selects a PCP from among the plan’s network of doctors at the point in which they enroll.

As with the PPO plan, the employee can choose to receive care out of the network and still get coverage, although at reduced benefits. If they seek care through their PCP, and s/he refers they employee on to a specialist within the network, they’ll receive the highest level of benefits.

The POS plan is more likely to have preventative care services and wellness programs. But, other than that, it works much like the PPO plan with copays, deductibles and coinsurance.

Health Maintenance Organization (HMO)

An HMO is also considered “managed care.” They are organizations providing health care in a geographic area that accept responsibility for delivering health care services. The HMO will contract with doctors and hospitals (or may even be their employer) to form a network. Members who receive medical care from a member of the HMO network will have very low cost for the services they receive. The HMO will not cover care received outside the HMO network, unless it is for emergency services.

There are many variations of HMO plans, but the most common are: Open Access and Primary Care Physician (PCP).

The Open Access HMO network works very much like the POS plan. There are network doctors. The employee can choose to see any of the network doctors at any time (self-refer), and still receive a high level of benefits. However, if they receive care outside the network, no benefits will be paid.

With the Primary Care Physician HMO network the employee selects a PCP when they enroll. That doctor is their point of contact for all their medical care. S/he will refer the employee to a specialist if appropriate. All referrals must be made by the PCP to be covered by the HMO.

Both types of HMO’s have similar benefit designs. They will include a copay for nearly all services received – physician copay, ER copay, hospital copay, etc. After the copay, the insurance company will pay the majority of services at 100 percent.

Although the programs described above have been represented distinctly from one another, there are many combinations of these plans that overlap one another and take on the characteristics of multiple plans. The employer may offer multiple choices of plan design so they will need to make a choice about which type of plan is best for them.