Health Insurance

Basics: Sorting out the details of private health insurance

In most cases, private health insurance comes through your employer, who picks up the vast majority of the premiums. Usually, you'll have some choice as to the type of plan you have. The job of choosing the coverage options is left to the employer.

If you're self-employed or work for a company that doesn't offer health insurance, you can buy it on your own. Taking that route isn't cheap. You may have a wide range of plans and plenty of coverage options to choose from, but the final decision will probably come down to what you can afford.

In 1995, more than 60 percent of Americans under the age of 65 had some type of private health insurance. Many of us have the coverage, but understanding the different kinds of health insurance can be a challenge. No matter who pays the premiums, make sure you know what you're getting.

Private health insurance can be broken down into two broad categories: traditional and managed care. Within those categories, there are four basic types of plans:

Traditional indemnity plans, which are now often called Fee-for-service
plans;

PPO, or Preferred Provider Organizations;

POS, or Point-Of-Service plans;

and closed-panel HMO, or Health Maintenance Organizations.

No one type of health care plan is better than the other. It really depends on your needs and preferences. Some people enjoy the autonomy offered by fee-for-service plans, while others prefer the low costs associated with closed-panel HMOs. Also, as health insurers compete for business, distinctions among the types of plans may blur. (For a quick comparison of the different types of plans, click here.)

'Traditional' Health Insurance

Up until about 30 years ago, most people had traditional indemnity coverage. These days, it's often known as "fee-for-service." Indemnity plans are a bit like auto insurance: you pay a certain amount of your medical expenses up front -- in the form of a deductible -- and afterward the insurance company pays the majority of the bill.

Advances in modern medicine increased the cost of providing health care and made it possible for people to live longer. Those advances caused many insurance companies to look for ways to reduce their costs of doing business, giving managed care the boost it enjoys today.

Fee For Service

For years, indemnity or fee-for-service coverage was the norm. Under this type of health coverage, you have complete autonomy when it comes to choosing doctors, hospitals and other health care providers. You can refer yourself to any specialist without getting permission, and the insurance company doesn't get to decide whether the visit was necessary...

Managed Care

Managed care has been around in one form or another since the 1930s, but it really took off in the last 10 years. As it grew, it evolved, leaving us with three basic types of managed care plans. Today, the majority of people with private health insurance have some type of managed care...

PPO

One step over the managed care border is the Preferred Provider Organization. PPOs have made arrangements for lower fees with a network of health care providers. PPOs give their policyholders a financial incentive to stay within that network...