This information is for reference purposes only. It was current when produced and may now be outdated. Archive material is no longer maintained, and some links may not work. Persons with disabilities having difficulty accessing this information should contact us at: https://info.ahrq.gov. Let us know the nature of the problem, the Web address of what you want, and your contact information.
Please go to www.ahrq.gov for current information.
3. Which type is right for you?
Whether you are eligible for group insurance or choosing an
individual plan, you should carefully compare costs and coverage.
Be sure to compare:
- Access to doctors, hospitals, and other providers.
- Access to after hours and emergency care.
- Out-of-pocket costs (coinsurance, copays, and deductibles).
- Exclusions and limitations.
Even if you do not get to choose your health plan—for example,
if your employer offers only one plan-you still need to understand
your coverage. What kind of services are covered by the plan?
What steps do you need to take to get the care you and your
family members need? When do you need prior approval to ensure
coverage for care (for example, elective hospitalization for
scheduled surgery)? How are benefits paid; do you have to submit
Make sure you understand how your plan works. Don't wait until you need
emergency care to ask questions.
If you are choosing between indemnity and managed care plans,
remember that they may differ in several important ways, including:
- How you access services.
- How you obtain
- How much and sometimes how you pay for care.
Despite these differences, indemnity and managed care plans
share some features. For example, both types of plans cover
a wide array of medical, surgical, and hospital services. Most
plans offer some coverage for prescription drugs. Some plans
also have at least partial coverage for dentists and other
The major difference between indemnity (non-network based
coverage) and managed care plans (network-based coverage) concerns
choice of doctors, hospitals, and other providers; out-of-pocket
costs for covered services; and how bills are paid.
Be sure to check on the physicians and hospitals that are included
in the plan.
Remember, plans vary in what they pay.
No plan will pay 100 percent of your medical expenses,
but some plans will pay more than others.
This type of coverage offers more flexibility in choosing
doctors and hospitals. Usually, you can choose any doctor you
wish, and you can change doctors at any time. Although you
usually will not need a referral to see a specialist or go
for x-rays or tests, you may need paperwork, such as your medical
records, from your primary care physician.
Be sure to ask your doctor if there's any paperwork that
you will need to take with you.
If you have indemnity insurance, your plan only pays part
of your medical bills. You are responsible for the rest. Your
out-of-pocket costs are likely to be higher for certain services
than with some managed care plans. Usually, you will need to
spend a certain amount each year before your plan begins to
pay benefits. This amount is called a deductible.
are the amount of the covered expenses you must pay each year
before your plan starts to reimburse you. Deductibles might
range from $100 to $300 per year per covered person or $500
or more per year for a family.
If you have an indemnity plan,
you may have more paperwork to do. Some doctors will submit
the claim for you. Once the doctor receives payment from the
insurance company, he or she will bill you for the difference.
With other doctors, you will have to pay the entire bill and
file a claim with your insurance company to be reimbursed.
Indemnity insurance pays a portion of the bill—usually 80 percent—
after the deductible has been met, although this may vary.
You pay the remainder, usually 20 percent of the total bill.
This is called coinsurance.
Indemnity policies typically have an out-of-pocket maximum.
This means that once your expenses reach a certain amount in
a given calendar year, the fee for covered benefits typically
will be paid in full by your insurance plan. If your doctor
bills you for more than the reasonable and customary charge,
you possibly may have to pay a portion of the bill. If you
have Medicare coverage, there are limits on how much a physician
may charge you above the usual amount.
There also may be lifetime limits on benefits paid under
the policy. Most experts recommend that you look for a policy
with a lifetime limit of at least $1 million. Anything less
may not be sufficient.
More than half of all Americans who have health insurance
are enrolled in a managed care plan. Managed care plans usually
cover a wide range of health services. With these plans, costs
are lower when patients use the doctors and other providers
who participate in the plan (network providers).
In most cases, you will not have to fill out any insurance
forms or submit any claims to the insurance company when you
use in-network providers. Usually, you will pay a copay (typically
$10 to $20 for an office visit) each time you go to the doctor
or hospital or fill a prescription. Your copay may vary depending
on whether you see your primary care doctor or a specialist
and whether you receive a generic or brand name prescription
Most managed care plans have a list of drugs that they cover,
called a formulary. Your copay for prescription drugs will
probably depend on whether you are getting a generic drug,
a brand name formulary drug, or a brand name drug not on the
plan's formulary. For example, the copay might be $10
for a generic drug, $25 for a formulary drug, and $40 for a
brand name non-formulary drug. Be sure to check the formulary
of the plan you are considering to make sure it will cover
any routine prescription drugs that you and your family members
Some managed care plans have a mail-order pharmacy option.
This means that you send your doctor's prescription for
routine maintenance drugs (for example, blood pressure medicine,
drugs to control blood sugar, and other drugs used on a regular
basis) to the mail order pharmacy. In most cases, you will
receive a 3-month supply of your medication by return mail.
You still pay a copay, but your cost may be lower than it would
be at a local retail pharmacy.
If you choose to enroll in a
managed care plan instead of an indemnity plan, you may have
lower out-of-pocket expenses for health care, as long as you
see doctors who are part of the plan (in-network providers).
There are three main types of managed care plans:
- Health maintenance organizations (HMOs).
- Preferred provider organizations (PPOs).
- Point-of-service plans (POS).
All three types of managed care plans have contracts with
doctors, hospitals, and other providers. They have agreed on
certain fees with these providers. As long as you get your
care from a plan provider, you typically will be responsible
only for any cost-sharing your plan requires.
Health Maintenance Organizations
HMOs have long been known for a focus on prevention and wellness.
Traditionally, HMOs required that you receive most of your
care from one primary care physician who is aware of your total
health picture. If you belong to an HMO, usually you must receive
all of your medical care from network providers, except in
emergencies. HMOs usually have flat copayments rather than
deductibles and co-insurance and no lifetime limits on coverage.
After you enroll in an HMO, you typically will need to select
a primary care physician who will be responsible for coordinating
all of your care. Primary care physicians may be family practice
doctors, internists, pediatricians, obstetricians-gynecologists,
or general practitioners.
If you become ill, your primary care doctor will see you
first, unless it is an emergency. Your primary care doctor
will give you a referral if he or she thinks you need to see
a specialist. Usually, your HMO will not provide coverage for
a specialist unless you have this referral.
In most cases, you must see a specialist who participates
in your HMO. Sometimes, in special circumstances, HMO patients
may be referred to providers outside the HMO network and still
If you need to be admitted to the hospital and it is not
an emergency, you may have to obtain precertification from
your plan. In most cases, your physician or hospital will take
care of this for you. Non-emergency hospital care may not be
covered without precertification. In case of an emergency admission,
you or a family member, your doctor, or your hospital will
need to contact your plan within a certain timeframe (usually
within 48 hours of admission) to obtain written confirmation
of coverage for the hospital stay.
Today, some HMOs do not follow this "primary care model." So, if
you are considering a traditional HMO, it is important to compare the features
and requirements among the various HMO plans that are available to you.
Preferred Provider Organizations
and Point-of-Service Plans
PPOs and POS plans combine features from both fee-for-service
and HMOs. PPOs and POS plans offer more flexibility than HMOs
in choosing physicians and other providers. POS plans have
primary care physicians who coordinate patient care, but in
most cases, PPOs do not. Premiums tend to be somewhat higher
in PPOs and POS plans than in traditional HMOs.
Generally, the greater the emphasis on in-network care, the
lower the premiums and the more comprehensive the benefits
will be. Consumers and employers make tradeoffs, deciding which
is more important: a greater choice of providers or a lower
If you are enrolled in a PPO or POS plan, your out-of-pocket
expenses will be less if you use a provider who is part of
the plan (a network provider). However, you will still get
some reimbursement if you receive a covered service from a
provider who is not in the network. In this case, your reimbursement
will be at a lower level than if you used an in-network provider.
If you choose to go out of network for your care, you may
have to meet a deductible before your plan begins to pay benefits.
Also, you may have to pay the bill yourself and submit paperwork
to the plan for reimbursement of covered expenses.
If you are
in a PPO, you will not need a referral to see a specialist
or get other types of care, but you may need to take some paperwork
with you. Be sure to ask your doctor if you will need a written
order or other documentation when you are referred to a specialist,
laboratory, or other provider.
When you go out of the plan's
network for care, PPOs and POS plans work like fee-for-service
plans and charge you coinsurance. For PPOs, this coinsurance
may be different than the coinsurance charged for in-network
providers. Also, you may have to pay the total cost of care
right away and then file a claim with your insurance company
to get the allowable reimbursement for out-of-plan care.