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Types of Health Insurance


If you only purchase one type of insurance, it might as well be health insurance. Costs for health care are very expensive, and grow each year at a steep rate. Unfortunately, some people only discover how costly health care can be after they are hit with high medical expenses.  One of the top causes for bankruptcies is staggering medical bills. Also, your health is directly related to your ability to work and provide income for your family. Should you become ill, you will want to have access to the best health care you can afford so that you can return to work and provide for your family as quickly as possible. Should you come down with a chronic illness, you will want to have access to ongoing treatments (which can be very expensive). Health insurance offsets the cost of medical care, and it needs to be an integral part of your safety net. At the very minimum, you need coverage that will kick in if you experience a catastrophic illness or injury.

The most affordable type of health insurance is Group Insurance. This is the type of health insurance offered by employers to their employees. Group insurance is cheaper than Individual Insurance (the other kind of health insurance) because in group insurance, risks are spread over a large group. There is no "pool" available to spread out risks when Individual Insurance is sold, so costs are typically higher for this type of coverage.

There are multiple types of Group Insurance available, including Fee-for-Service, Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Point-of-Service (POS), and Medical Spending Accounts (MSA).

Fee-for-service (Indemnity). This type of health insurance offers you a limited choice of care providers. Most health insurance companies have contractual relationship with specific hospital and physician groups. You typically have a choice of providers from within these contractual relationships. However, this is not always the case either. Some policies require that your primary care provider refer you to specialists before you are authorized to see them. There are other restrictions on what will be paid for as well. Fee-for-Service insurance typically will not cover preventive health care maintenance such as well check-ups).

There are 3 levels of coverage with typical Fee-for-Service plans: Basic, Major Medical, and Comprehensive. Basic covers hospital room and board, hospital care, some hospital tests, and surgery. Major Medical covers catastrophic illness as well as in-patient and out-patient costs. Comprehensive coverage is a combination of the Fee-for-Service and Major Medical. Although this type of insurance gives you the most choice, it is also the most expensive. Monthly premiums are the highest for this type of coverage and there is also an annual deductible, per person and per family, you must pay before the insurance company pays for benefits.

Health Maintenance Organization (HMO). This is a managed care option, which means that you pay less money for coverage but have less choice in providers or health care procedures available to you. The insurance company negotiates prices for care with a network of doctors and hospitals. When you receive care from providers in this network, you pay them a co-pay (small fee) and the insurance company pays the rest. Out-of-network coverage is greatly reduced (meaning that you cannot see a doctor who is out of your network without paying for most of that visit out of pocket).

The advantages of HMO plans are smaller monthly premiums than you'd pay for Fee-for-Service coverage, and coverage that includes most types of preventative care. The chief disadvantage of HMOs is that specialist care will not be covered unless you get a referral from your primary care physician.