Thursday, July 16, 2009

How to Compare Medical Insurance Plans

Know the differences between health plans to avoid confusion and delays

In the United States, most health insurance plans are one of two types: HMOs or PPOs. These are often called “managed care” plans.

When evaluating plans offered by your employer, or when searching for an individual health insurance plan, it is essential that you understand the differences between these two types of programs. Understanding the plan’s features and choosing the right one for your situation will ensure you receive faster service without the headaches that come from a misunderstanding of your benefits.

Step 1

Request a benefits summary from the insurance company. This document describes all features of the health plan in an easy-to-understand format. The most common features and concerns are listed in one column, and your participation cost or copay is listed in the second column.

Step 2

Evaluate the HMO, which stands for health maintenance organization. This is by far the most common type of health insurance program in the United States. HMOs are designed to be simplistic and keep costs to a minimum for both the participant and the insurance company alike. Physicians and facilities have contracted with the insurance carrier to provide services to members of that carrier’s programs.

As long as an insured member visits a provider within the network, there are no costs outside the pre-defined co-pays listed in the benefits summary. The HMO concept keeps costs down by requiring members to visit their primary care physicians (PCP) prior to making appointments with specialists. A referral is required from the PCP to ensure the specialist’s involvement is absolutely necessary and appropriate.

Step 3

Evaluate the PPO, which stands for preferred provider organization. This is the second most common type of health insurance program in the United States. It works exactly like an HMO, but with much less restriction on a member’s activity. The network of providers still exists, and members are encouraged to visit only those physicians and facilities.

However, if an insured member chooses to seek treatment from a provider outside the network, the insurance company will still pay for the bulk of those services. In such an instance, the member is typically responsible for fulfilling a deductible before the insurance carrier will pay, and when the company does pay, it will typically be at a much lower percentage than if treatment had been provided by an in-network physician.

Members of PPOs are not required to obtain a referral before seeing a specialist. This eliminates the need for an extra trip to the PCP, and also eliminates the additional office copay.

Step 4

Examine out-of-pocket expenses. There are three main cost components to a health insurance plan, and reviewing these is the easiest way to compare different policies. Co-pays for visiting PCPs and specialists are the first main component.

Many health carriers set a cost that is the same, regardless of whether the member is visiting their family doctor or a specialist. In light of the major cost increases over the years, however, many insurance companies now offer split co-pays, meaning that these costs are different. Typically, the specialist co-pay is slightly higher. In-patient hospital costs are the second component to examine.

Some policies are built so that there is no cost whatsoever to the member in the event that hospitalization is required. Other policies are arranged so that the member is responsible for several hundred dollars per day for in-patient stays.

The last component is prescription coverage. Most health insurance companies offer a three-tiered prescription card, with generic drugs costing the least, name-brand drugs slightly higher and non-formulary drugs -- or drugs not typically recommended by physicians for the condition -- costing the most.

Step 5

Examine the provider network. No matter how good the features of a health insurance policy appear, it will not benefit you if your physicians are not participating providers. All insurance carriers have giant books, called provider directories, which list every physician and facility in their network.

This information is also available on the insurance company’s website under the Provider Search section. In the event that your physician is not a participating provider, you can choose a different insurance policy or a different physician.


In the event of an emergency, there is no penalty for services rendered by out-of-network providers. If a member of an HMO is in need of emergency care, and such care is provided by a physician who does not participate in that member's insurance network, the insurance company will not penalize the member and will still pay for those services.

Do not forgo necessary medical treatment in the event of an emergency because of a fear of financial obligation.


If an insurance policy requires members to fulfill a deductible, that deductible must be paid in full before the carrier will pay for any services.


HMOs Explained

Resources (Further Reading)

Health Insurance Guides

This article is a Twisted Nonsense Exclusive! (07/16/2009)

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