Updated August 15, 2006

Tips for Buying Health Insurance

by Gerald L. Mummey, C.L.U.

Indemnity vs. managed-care plans
There are still a few indemnity carriers who issue traditional hospital-medical plans and major medical plans to either individuals or groups. Indemnity plans reimburse, or indemnify, the person for medical bills up to some stated dollar amount or percentage of the total bill. However, not all bills are considered reasonable, and amounts in excess of the insurance carrier's limits for what is reasonable become the person's responsibility. Most indemnity plans permit the insured person to be treated by any licensed medical practitioner.

PPOs. Indemnity plans that reward a person for seeking care from certain providers are typically referred to as preferred provider organizations (PPOs). Participating practitioners agree to accept a pre-determined fee schedule as total payment and not to charge more than that amount to a person covered by the PPO program. This doesn't mean, however, that a person pays nothing for services rendered. Normally, the person pays an out-of-pocket expense equal to a small dollar amount or percentage of the total bill. For example, if the PPO fee schedule recognizes $100 for a specific procedure and pays 90% of that amount, a person would pay $10, the carrier, $90. If the practitioner's normal fee for that procedure were $120, he would have to accept the $100 as payment in full. Another person with a different type of insurance would be billed the full $120.

In exchange for the discounted rate of payment, the PPO physician is assured of at least partial payment of his bill and a continual flow of new patients referred to him by the carrier's directory listings.

HMOs. Unlike PPOs, health maintenance organizations (HMOs) actually employ the medical practitioners and require that all but life-threatening medical emergencies be treated by one of their own providers at one of their own medical centers. Some hybrid HMOs permit their physicians to treat people not in the plan, but in their original form, HMOs hired doctors and paid them a salary to treat only HMO members.

Establishing a medical center can be very costly for HMOs with relatively few members, so many small HMOs contract with existing practices to provide care to HMO members at set rates while treating non-HMO members on a fee-for-service basis. It is not uncommon to find a doctor or an entire medical practice representing several HMOs and at the same time, being an active participant in several PPO plans.

Some states now mandate that HMOs compensate nonmember physicians for at least a portion of the bill when they provide services to HMO members. In those states, the distinctions between PPOs and HMOs have become so blurred that it is often difficult for consumers to know which is which. In many cases, it makes very little difference at claim time since both PPOs and HMOs must answer to the same commissioner if a claims dispute arises.

COBRA
People with diabetes who have successfully obtained a good group insurance policy need not allow their coverage to lapse if they leave their employer. A federal law called the Consolidated Omnibus Budget Reconciliation Act (COBRA for short) requires employers with more than 20 employees to offer most terminating employees the option to continue their group medical benefits for up to 18 months (in some cases, 36 months). The participant will undoubtedly lose the employer's premium contribution (if any) and may be surcharged up to 2% over and above the actual premium, but a terminating employee cannot be refused continuation of insurance (unless he was terminated because of fraud or other criminal acts).

While COBRA was a real breakthrough for employees, it has its weaknesses. For one thing, small employer groups (20 employees or less) are exempt from the law, and COBRA makes no provision for continuation of coverage if the employer cancels the group plan. Obviously, if an employer discontinues the master group policy, there is no way an individual subscriber can maintain coverage under it.

Also in this article:
Health Insurance Resources

Gerald Mummey has been a Chartered Life Underwriter since 1972 and is past president of both the Baltimore Health Underwriters Association and the Maryland Association of Health Underwriters.

More articles on Money Matters

Statements and opinions expressed on this Web site are those of the authors and not necessarily those of the publishers or advertisers. The information provided on this Web site should not be construed as medical instruction. Consult appropriate health-care professionals before taking action based on this information.