Basics of Health Insurance

This article was written by Jackie Spragins. More about her at the end.

There are basically four types of health insurance available today – Traditional, PPO, HMO, and Medicare.

“Traditional” is insurance that usually has a deductible to be met first (you pay for first $’s in a calendar year for your treatments).  After the deductible is met, the insured pays a percentage, known as the “coinsurance”.  Once that coinsurance has reached a stated maximum, the insured pays nothing.  The caveat here is that the insurance company will only consider charges up to the “Usual and Customary” for the area in which the insured lives.  The companies have statistics about charges in certain areas, and U&C is based on those statistics.  Anything above U&C is the expense of the insured.  This insurance is the most expensive, because there are no contracts to encourage insureds to use health care providers with discounted rates.  There are no discounted rates, period.

“PPO”, which stands for Preferred Provider Organization, is when an insurance company contracts with health care providers in an area to discount their services in return for the insurance company promoting use of those providers for their insureds.  Most of these plans have “Copays” for office visits (Copays are a set amount that the insured pays for the office visit, with the insurance company paying the remainder of the charges.  Deductibles are waived for benefits with Copays), then deductibles and coinsurance applying.   As long as the insureds go to in-network (contracted) providers, they will have better benefits, such as copays, lower coinsurance, lower out-of-pocket limits, etc.) than if they choose to go to out-of-network providers (non-contracted).  These plans give the insureds choice of providers, but the insureds will be penalized financially, as stated above, for choosing out-of-network providers.  The premiums for these plans are lower than Traditional insurance because of the contracts with providers keeping costs lower.

“HMO”, which stands for Health Maintenance Organization, is when an group of health care providers are all contracted under one umbrella (the HMO) and that HMO then sells benefit plans to patients.  In order to receive  benefits, which are usually excellent with lots of copays instead of deductibles and coinsurance,  the insureds MUST go to only the providers inside the HMO.  If the insured goes to an outside provider, no benefits are paid, except in the case of a no-choice emergency.  These plans are the least expensive, because the costs are more defined due to the contracts.   These plans are usually sold only in the large metropolitan areas, as they depend on large numbers of insureds to be financially solvent.

THE ABOVE PLANS ARE AVAILABLE THROUGH INDIVIDUAL OR FAMILY PURCHASE, OR THROUGH EMPLOYER PLANS (GROUP INSURANCE).

Medicare insurance is for those over age 65, or disabled under 65, who have paid into the Medicare system through employment. The benefits under Medicare are divided into two parts: In-Hospital (Part A), and Out-of-Hospital (Part B).  In simplified form, the benefits are paid as follows:

• Part A.   Each time you are hospitalized, you pay a large deductible, then Medicare pays the remaining amount. 
• Part B.  Any treatments out of the hospital are paid at 80% of Medicare-approved amounts, after a $100 calendar-year deductible.  Prescription drugs are not included in this, although Congress is working on some type of prescription benefits for Medicare recipients.

It is possible for Medicare recipients to buy supplement policies to cover Medicare-approved amounts that are not paid by Medicare, such as the hospital deductible and the 20% coinsurance the insured is responsible for.

Jackie L. Spragins, RHU (Registered Health Underwriter) is the owner of Spragins Insurance Agency, Inc., in Wichita Falls, Texas.   Ms. Spragins is a Past President/Trustee Emeritus of the Texas Association of Health Underwriters and recipient of its highest honor, the Hollis Roberson Award.