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The 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 plans.

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 POS plans.

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.



To learn more about health insurance review other articles.


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