Different Types of Health Insurance Companies

There are several different types of health insurance companies and plans: HMOs, PPOs, POS and Fee-For-Service. Different companies offer various levels of coverage, and different amounts of flexibility regarding which doctors and hospitals you can use. Don't feel overwhelmed or intimidated. With a little research, it's easy to understand the differences between these types of companies' plans.

Basic Information

• Health insurance companies have the same basic idea: charge a monthly or annual fee, and in exchange, pay a percentage of the health care costs incurred by the patients they cover. The insurance companies must then find a way to provide plans that are affordable enough that a significant number of people will become members, without the insurance company losing money in the process. Different types of insurance companies go about this differently, which affects your options as a patient.

Terminology

• A "network" refers to the hospitals, doctors and health care providers that are contracted with an insurance company. A "deductible" is the amount of money you will pay before your health insurance kicks in. For example, if you have a deductible of $500 and your hospital bill is $9,250, you would pay $500 and your insurance company would cover the other $8,750. A "co-pay" is a (usually small) amount of money that you pay for each service. For example, you might pay $10 for a general check-up, and your insurance company covers the rest.

HMO

• HMO stands for "Health Maintenance Organization." HMOs try to pay hospitals and health care providers as little as possible in an attempt to provide affordable insurance. To do this, HMOs negotiate with hospitals and health care providers to come up with contracts that outline specific amounts the HMO will pay for specific services. In return, the hospital or health care provider receives more patients. For this reason, patients covered by an HMO are required to receive treatment within that HMO's network. HMOs usually charge co-pays rather than deductibles, and usually require you to have a Primary Care Physician (your primary doctor who may refer you to specialists as needed).

PPO

• A PPO ("Preferred Provider Organization") is similar in principle to an HMO. However, as the name suggests, choosing treatment within the PPO's network is preferred rather than required. In this way, PPOs provide more flexibility. However, if you are part of a PPO and get medical treatment outside the network, your co-pay and deductibles are higher than if you are treated within the network. This is to offset the PPO's extra cost in paying for care with a noncontracted provider. PPOs also offer more flexibility by not requiring a Primary Care Physician.

POS

• A POS ("Point Of Service") plan is a cross between an HMO and a PPO. POS plans, like HMOs, require a Primary Care Physician, and cover nearly all of the charges provided within the network. But with a POS plan, you have the same flexibility as with a PPO: you can choose to be treated by doctors and hospitals outside the network of the POS plan while still having some (not all) of the medical expenses covered by the insurance company.

FFS

• FFS ("Fee-For-Service") plans are different from HMOs, PPOs, and POS plans because they do not have a contracted network of health care providers. Instead, they decide on a set amount that they will pay for each service. For example, a hospital might charge $1,375 for a day at a basic level of care, but the FFS policy might only reimburse $1,250 for this same day. The patient would be responsible for the difference of $75. This is in addition to any deductibles or co-pays involved in the policy. However, FFS plans allow the most flexibility in choosing who provides your health care, since they are not contracted with anyone.