Basic Types of Health Insurance in an Era of Healthcare Reform
Victor E. Battles, M.D. - December 10, 2013
There are four basic types of health insurance from an operational standpoint, but with the advent of healthcare
reform, their prevalence, popularity, and fates differ. In considering the types of health insurance it is
important to not confuse insurance type with the metal level used for designating the actuarial value of Obamacare
insurance plans. The type of insurance has more to do with the rules and regulations as stated in the policies and
contracts with providers. Those regulations govern how and when the benefits can be accessed or utilized by the
enrollees (plan members), the conditions and circumstances under which claims will be paid, how much healthcare
providers will be paid, and how much the providers can bill the plan members.
The four major types of health insurance plans can be placed into major categories, managed care, and indemnity
plan insurance. Health maintenance organizations (HMOs) preferred provider organizations (PPOs) and point of
service (POS) plans are categorized as managed care, and as the name implies, regulate activities pertaining to
benefit utilization and reimbursement to varying degrees depending upon the type of plan. Indemnity plan insurance
on the other hand, regulates utilization of health benefits minimally in comparison to managed care plans, and
don’t regulate healthcare provider billing at all.
From a managed care standpoint, it is important to recognize the distinction between management of utilization of
benefits and covered benefits. HMO, PPO, POS and indemnity plans all provide some common covered health benefits at
varying levels, but accessibility to the benefits is what distinguishes the plan type. The legal authority of
managed care plans to regulate members is stated in the policies, whereas legal authorization to regulate the
healthcare providers is via signed contracts between the providers and the insurance companies which sell the
In addition to a contractual relationship between insurance companies, enrollees, and healthcare providers, managed
care is based on a network of providers and healthcare facilities such as hospitals, day surgery centers,
laboratories and x-ray groups. The contractual requirement for plan members to receive their care through the
network or the option for utilizing out of network benefits is the main distinguishing factor between HMO, PPO and
HMO plans require utilization of in-network physicians and facilities (also known as preferred providers), in order
for services to be covered, even if they are stated benefits in the insurance policies. Additionally, HMO members
must select primary care physicians (PCPs), also known as gatekeepers, who coordinate most of their care, including
the granting of referrals which are necessary to see specialists. Many HMO plans only require a set copayment for
doctor office visits but some require coinsurance payments.
PPO plans provide the flexibility of allowing enrollees to obtain their care from network providers or outside of
the network. If benefits are obtained within the network however, out-of-pocket expenses in the form of
deductibles, copayments, and coinsurance are less, and usually considerably higher if services are obtained outside
of the network. Additionally, PPOs do not require the members to choose a primary care physician, and don’t require
referrals to see specialists.
POS plans are a hybrid of HMO and PPO plans in that they have features of both. With POS coverage, enrollees can
opt to receive in-network or out of network benefits. In-network benefits including specialist visits can be
received with or without a PCP and referrals respectively, but with greater out-of-pocket expenses if a PCP is not
directing the care. Services can also be obtained outside of the network at an even greater cost with respect to
out-of-pocket expenses compared to in-network benefits.
Indemnity-plan health insurance is a policy contract with the enrollees, but is not a contractual relationship with
providers. Therefore, it cannot regulate what providers charge. Although it does not require insured members to
utilize any network provider, many of the plans do have regulations with respect to precertification or
preauthorization for certain services such as non emergency hospitalizations and expensive x-ray studies such as
MRI scans. Although ordering physicians should obtain the precertification, the responsibility for making sure the
precertification has been obtained rests with the policyholders.
Managed care plans have become much more prevalent and popular since the early 1990s because the cost containing
measures they deploy allow the provision of a level of benefits much greater than what could be provided without
them. With the advent of the Affordable Care Act and its requirement that qualifying plans provide certain basic
coverage known as essential health benefits, the prevalence and popularity of managed care plans will most likely
continue to increase.
Most of the Affordable-Care-Act health insurance plans also known as Obamacare health insurance plans which are
being sold on the federal and state health insurance exchanges are PPO and HMO plans. A significantly smaller
number of POS plans are being sold in select regions primarily on the East Coast.
Indemnity plan insurance has become much less popular and prevalent down through the years and this trend is likely
to continue inasmuch as many of them don’t provide the essential health benefits as mandated by the Affordable Care
Act. Additionally, they are not sold on the federal and state health insurance exchanges.
Victor E. Battles, M.D. is a board-certified internist with 30 + years of patient contact. He has been a principal
investigator in several clinical research trials and is the founder of Proactive Health Outlet. Additionally, he
has worked in the areas of quality assurance and utilization review.