Difference Between Health Insurance & Health Maintenance Organizations

Health insurance and health maintenance organizations both do the same thing -- cover the cost of health care if you're ill. You pay premiums for both in exchange for this service. However, there are differences in how each one works. To get the maximum benefit from your health care coverage, be aware of the difference before you pay any premiums.

History

• The original type of health insurance was what we would call disability today. In the early days of the U.S., the cost of being sick was mainly due to the loss of income, not the cost of doctors or hospitals. By 1929, as more people used the services of hospitals for medical needs, a group of teachers from Dallas, Texas, began the first group health policy. They made an agreement with Baylor Hospital for their services and rooms in exchange for a monthly fee from each.

Health Maintenance Organization

• Just like the first group health policy, health maintenance organizations offer prepaid medical care services. Today, however, there are added services besides just hospital visits and small payments, called co-payments for each service. The concept is the same -- you use one of the health care providers listed and the company pays for your visit. HMOs also require you to select a primary care physician who acts as a gatekeeper. In order to see a specialist and still have the HMO pay, the "gatekeeper" must refer the patient.

Health Insurance

• While HMOs are health insurance policies, not all health insurance policies are HMOs. Traditional insurance policies allow you to use the services of any health care provider and after a deductible, a set amount you pay every year before the company pays anything; the company reimburses you for that amount or pays the provider directly based on a percentage called coinsurance. Once you reach the out-of-pocket maximum, the company pays the entire amount.

In Between

• Between traditional health insurance and HMOs is a group of policies with characteristics of each. A point of service policy (POS) and preferred provider policy (PPO) offers plans similar to both. POS plans sometimes have a primary care physician but pay for other health care providers. PPO plans don't have a gatekeeper primary care physician. Both pay less for the services of out-of-network health care providers.

Deductible and Coinsurance Vs. Copayment

• HMOs require the patient to make a copayment when they receive services. A copayment is a small preset payment for the service from the customer. Traditional insurance requires a deductible and coinsurance in almost every case. Once the insured pays the deductible, the company then pays a percentage of the bill and the insured pays a percentage, which is coinsurance.

Effects

• Traditional health insurance tends to cost the consumer more money in premiums. HMOs are more inexpensive but far more restrictive in selection of doctors and, often, their coverage.