Different Kinds of Health Insurance

Whether you buy group or individual insurance, the options you have regarding the different types of insurance are generally the same.  In some groups you can even choose from a menu of available plans. These different types are traditional health in­surance, health maintenance organizations (HMOs), and pre­ferred provider organizations (PPOs).

Traditional Health Insurance

The traditional health care delivery system is based on a fee-for-service type of arrangement. In a fee-for-service system, you pay for each itemized medical service you receive. In the days of the frontier, "Doc" often received a chicken as payment. Today, physicians are paid with money, lots and lots of it. Fee-for-service health insurance recognizes this practice and is designed to reduce or even eliminate your duty to pay directly for your medical care. Traditional health insurance comes in three parts:

Hospitalization. Hospitalization covers defined expenses in­curred while in the hospital. Generally, the insurance will pay for all of the covered services rendered by the hospital staff. However, if the insurance benefit is an indemnity payment plan (see Glossary), the payment will be for a fixed sum regardless of the actual expenses incurred. This fixed sum will usually be far below the daily charge actually made by the hospital.

Medical/surgical. This part of a traditional health plan covers the expensive costs of medical care other than the bill from the hospital. Services such as doctor visits, treatment charges, etc., are covered here. Medical/surgical usually has a deductible (see page 12) and requires copayments by the insured (payments you make for charges not covered by the insurance), typically 20 percent of the doctor's fee.

Catastrophic or major medical. There are usually lifetime max­imum payments that hospitalization and medical/surgical plans will pay, after which the well runs dry. Unfortunately, these maximums may not be sufficient to pay for all of the care required if a major illness or injury should strike, since such afflictions can eat up hundreds of thousands or even millions of dollars worth of health services. Thus, catastrophic coverage adds to your umbrella of protection in an amount sufficient to protect you from the horrendous expenses of such serious and prolonged illnesses. These policies also fill in some of the gaps not covered by hospitalization or medical/surgical. Health Maintenance Organizations

The health maintenance organization (HMO) is a relatively new player in the health insurance game, although it has been around in a limited fashion since the 1930s. The idea behind an HMO is to pay one premium and receive all of your health care at no or a nominal additional cost. The point is to save money compared to traditional health plans that cost more to purchase and require more out-of-pocket payments from the insured. What you, the insured, give in exchange for reduced cost is a substantial loss of your freedom to choose who will take care of your health needs.

Preferred Provider Organizations Preferred provider organizations (PPOs) seek to give both the benefits of traditional health plans and the money savings of HMOs. They do this by paying higher benefits as a reward for your using the doctors or hospitals they preselect for that purpose.

Disability Insurance Disability insurance does not pay for health care; rather it pays for lost wages caused by a disabling injury or illness.

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