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The Basics of Health Insurance Plans

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Understanding the basics of health insurance plans enable the medical office staff to effectively communicate with patients regarding their health insurance benefits and discuss patient account details with insurance company representatives.

Having a basic understanding of each type of insurance will minimize complications for filing claims and collecting payments. There are two major types of health insurance plans:

  1. Indemnity Insurance
  2. Managed Care Plans

Indemnity Insurance

Indemnity insurance plans makes payments to the medical office based on the fee-for-service model. In a fee-for-service, the medical office is paid a set amount for each type or unit of service rendered. An office visit, lab tests, xray, or other service are individually paid according to the fee schedule. This payment method allows the medical office to receive the maximum reimbursement for each episode of care.

Patients that have an indemnity plan pay for services out of pocket and seek reimbursement for covered services from their insurance plan provider. The medical office only becomes involved for services that require prior authorization.

In addition, indemnity plans:

  • Members do not belong to a network of physicians
  • No referrals required for specialists visits
  • Payments are made based on the usual, customary and reasonable (UCR) charge for covered services.

Managed Care Plans

Manage care plans seek to manage the costs of health care for its members by coordinating and planning care with the network of physicians, specialists and hospitals. There are four types of managed care plans:

  1. Health Maintenance Organizations (HMOs)
  2. Preferred Provider Organizations (PPOs)
  3. Exclusive Provider Organizations (EPOs)
  4. Point-of-Service (POS) Plans

The main differences between these types of managed care plans are listed below.

1. Health Maintenance Organizations (HMOs)

The characteristic that stands out the most with HMO plans is its capitation payment method. Per patient payments, or capitation payments, are fixed, monthly payments received by the medical office for the patient. This amount stays the same regardless of how many visits the patient has or the cost of incurred expenses and even when they don't receive care at all. Other characteristics of an HMO are:

  • Limited to in-network providers except in emergencies
  • Referrals are required to see a specialist
  • Prior authorization is required for certain services
  • Members have no deductible and minimal copays

2. Preferred Provider Organizations (PPOs)

PPOs are similar to Indemnity plans in many ways. Both PPOs and Indemnity plans are paid by the fee-for-service method. In a fee-for-service, the medical office is paid a set amount for each type or unit of service rendered. An office visit, lab tests, xray, or other service are individually paid according to the fee schedule. This payment method allows the medical office to receive the maximum reimbursement for each episode of care. Other characteristics of a PPO are:

  • In- and out-of-network providers allowed, patients pay less when in-network providers used
  • No referrals are required to see a specialist
  • Prior authorization is required for certain services
  • Members may be responsible for deductibles, copays and coinsurance

3. Exclusive Provider Organizations (EPOs)

EPOs are similar but more restrictive than PPOs.
  • Limited to in-network providers except in emergencies
  • No referrals are required to see a specialist
  • Prior authorization is required for certain services
  • Members may be responsible for deductibles, copays and coinsurance

4. Point-of-Service (POS) Plans

POS plans are a cross between PPO plans and HMO plans. POS plans offer out-of-network services, however, some of them may limited, reduced or unavailable.

  • In- and out-of-network providers allowed, patients pay less when in-network providers used
  • Referrals are required to see a specialist
  • Prior authorization is required for certain services
  • Members may be responsible for deductibles, copays and coinsurance
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