As you select a health insurance plan during open enrollment, you may have several types to consider. These include:
- Health maintenance organizations
- Preferred provider organizations
- Exclusive provider organizations
- Point of service plans
- High deductible health plans
- Supplemental health plans
Factors that distinguishes plan types include:
- Whether you’re required to have a primary are physician
- Whether you’re required to obtain a referral before seeing a specialist
- Whether certain services must be pre-authorized by the insurer
- Whether the plan pays for out-of-network providers
- The amount of out-of-pocket costs you’re required to pay
Below is an overview of the different types of health insurance plans.
This type of health insurance plan is offered by insurance companies with the goal of providing care as inexpensively as possible. This is accomplished in two ways.
First, HMOs provide a list of care providers, called a network, that the insured must use for almost all care. The HMO has negotiated rates with the physicians in the network, and therefore will not cover care provided by an out-of-network doctor charging a different rate. The exception to this rule is if there is an emergency where a network provider may not be accessible.
The second way HMOs manage costs is to have patients use a primary care physician (PCP). Your PCP will provide the majority of your care. He or she will also refer you to specialists when needed. Typically, the insurance company will not cover specialist care unless it’s been referred by the PCP.
HMOs are ideal for individuals who seek lower-cost health services overall or for those who prefer the guidance of a physician in all their care choices. Aside from having to choose providers in the network, there are few other limitations. About a third of all health plans used are HMOs.
PPO plans offer more flexibility than HMOs. Like HMOs, they group care providers within a network where a fee schedule has been worked out in advance. The difference is that you maintain the option of using physicians outside the network. You will pay more for out-of-network care in the form of higher copayments, higher deductibles, and/or a lower percentage of covered costs. But the option is available if you want to take advantage of it.
Another difference between HMOs and PPOs is that the latter typically does not require a primary care physician. This means you do not need a referral before seeing a specialist. However, some PPOs require pre-authorization from the insurance company before seeing a specialist.
In exchange for this flexibility, PPOs tend to charge higher premiums than HMOs. They are ideal for patients who need or want more provider options, whether it’s because the patient lives in a remote area or has to see several different specialists.
[ Related read: HMO vs. PPO Plans: Which is better for you? ]
EPOs are the most restrictive type of health care plan. They are among the least used, accounting for less than 10 percent of health insurance plans.
Like HMOs, EPOs require patients to limit their care to in-network providers. This often includes emergency care.
They are similar to PPOs in that they don’t employ primary care physicians and you do not need a referral to see a specialist.
EPOs allow insureds to lower their care costs. In exchange, however, finding care providers will require more legwork. Because of the limited number of available in-network carriers, EPOs tend to only be a good option for people living in large cities and metro areas.
This type of plan most resembles an HMO but has fewer restrictions on the use of out-of-network providers. Specialized care, however, requires a referral from a primary care physician. POS plans are great for people worried about unpredictable non-network charges.
If you want to save on your health insurance premium you can choose a high-deductible health plan (HDHP). These plans charge less in premium than standard insurance plans and are often used by individuals and families who don’t have regular medical needs and just want something to cover major illnesses and injuries.
The major downside of an HDHP is that it typically doesn’t cover any medical expenses until you have reached the annual deductible, which is, as the name implies, high (some plans will pay for preventative care without requiring the deductible to be met).
For 2021, the IRS defines an HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $7,000 for an individual or $14,000 for a family. (This limit doesn't apply to out-of-network services.)
To help individuals and families pay for expenses before they reach the deductible, health savings accounts (HSAs) are available.
An HSA lets you set aside money on a pre-tax basis to pay for qualified medical expenses. You can only do this if you have an HDHP and it’s the only health insurance you have.
For 2021, you can contribute up to $3,600 for self-only coverage and up to $7,200 for family coverage into an HSA. The account’s funds roll over year to year if you don't spend them. An HSA may earn interest or other earnings, which are not taxable.
Since health insurance rarely covers all health-related expenses, insurers offer a variety of supplemental insurance policies. These insurance plans typically provide benefits for specific health needs and are much less expensive than a regular health insurance policy. However, they are not a substitute for having health insurance.
Common types of supplemental insurance and typical premium costs include:
- Accident insurance is designed to provide a financial benefit to help cover the costs of being injured in an accident.
- Cancer insurance is a supplemental insurance policy that offers benefits for expenses related to a cancer diagnosis. It can help pay for medical and non-medical costs related to living with cancer.
- Hospital indemnity insurance helps cover the costs of hospital admission that may not be covered by other insurance. Plans typically provide benefits to you when you are admitted to a hospital or ICU for a covered sickness or injury.
- Critical illness insurance (CII) is a type of supplemental insurance that pays a lump sum benefit if you are diagnosed with a covered illness. It is designed to help people cover the cost of treating and recovering from expensive illnesses and procedures, such as heart attacks, strokes, and cancer.
Choosing which type of plan is best for you and/or your family involves balancing the importance of flexibility and cost. The more a plan limits your choices, the less it will cost in premiums and out-of-pocket expenses. At the same time, you’ll want to consider whether you’re prepared for the extra work of receiving pre-authorization and finding in-network providers.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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