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There are two basic types of insurance: indemnity plans and managed
care.
Indemnity insurance -- also called "fee-for-service" -- generally gives
you greater freedom and flexibility than managed care. However, you'll
pay more out of pocket for the health care you get. With indemnity
coverage, you can choose any doctor, hospital, laboratory, or other
medical provider.
As long as your insurance contract includes the service performed,
insurance will cover it, though it won't pay the entire charge. You'll
have to satisfy an annual deductible -- generally a few hundred dollars
-- before insurance even kicks in.
Then, you'll owe a portion of each bill, called a co-payment, normally
20 percent. If the provider you choose charges unusually high fees, your
share may be considerably higher. That's because your insurer will base
its 80 percent share on the "usual and customary" fee for the service in
your area, not on the actual bill.
As a rule, indemnity insurance covers only illness or accidents; it
doesn't pay for preventive care such as flu shots or birth control.
Depending on your policy, it may or may not pay for prescription drugs
or psychotherapy.
In its pure form, managed care flips indemnity coverage 180 degrees.
With a health maintenance organization (HMO), deductibles are often
smaller than with other plans and sometimes there are none. Co-payments
are fixed and low, and preventive care, drugs, and mental health
treatment are usually covered.
However, you can choose only among doctors, hospitals, and other
providers who have contracts with your HMO, and you can receive only
medical services authorized by the plan. If you use non-authorized
providers or receive non-authorized care, your HMO will not pay any
portion of the bills.
Because many people are uncomfortable with these restrictions, managed
care has evolved to include hybrid plans that blend HMOs with some of
the features of indemnity coverage.
With a point-of-service plan (POS), for instance, you can keep your
costs low by using a network of doctors and hospitals that have
contracts with your insurer. If you choose to do so, you can go outside
the network, but you'll pay a deductible and higher co-payments.
Competitive marketing has produced other permutations, such as the "open
access" HMO that allows you to see a network specialist without a
referral. The only way to know for certain what your options and costs
are is to carefully read the descriptive materials and question anything
that's not clear.
For general help in understanding health insurance, check the federal
Agency for Health Care Policy and Research. Your state insurance
department may also offer online help. Check this guide from the Food
and Drug Administration to find your state health agency's Web site.
Websites like this can help you to understand different types of health
insurance. Enter your zip code below and you will be pointed to a
quality insurer in your area.
Once you grasp the basics, you're ready to make informed choices. The
next section tells you how to find the coverage that best suits your
needs.
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