How Does Health Insurance Work?

Health insurance can be a tricky business when you are not fully aware of all that is on offer. Oft times, without prior knowledge of the sheer amount of options can confuse you when sitting with a broker and lead you to making a bad decision.

The first thing to consider is whether to go with an HMO (Health Maintenance Organization) or a traditional insurer. The differences in policy are the main things to look at. At a traditional insurer you are likely to pay a premium and only use the service when needed. HMO’s work differently, in that they manage the health care for you. HMO’s will usually have a network of PPO (Preferred Provider Organizations) that they have contracts with. These organizations give the HMO a discount on services in the hope that they will benefit by gaining more clients.

When going with an HMO, you will typically be assigned a PCP (primary care physician) such as a general practitioner, a family doctor or pediatrician that will diagnose you and if needed, refer you to a specialist. Women are allowed to choose their own gynecologists for regular checkups and people with chronic illnesses may decide to see a specialist for their condition.

One should bear in mind that emergency situation do not require referrals and people can go directly to a specialist if the need is urgent. There are options to have open-access HMO’s where you do not need a referral to go see a specialist, though these plans have more expensive co-payment/coinsured plans when seeing specialists.

It is always prudent to check whether the health insurance you are buying contains a clause that disallows use of non-preferred providers. In this case, the health insurance will not cover you if you do not use their network of health care professionals. This is a serious disadvantage if the PPO network is not sufficient in scope (maybe you are a frequent traveler and some areas of the country are not covered etc).

The other option is an indemnity plan, whereby you pay a fixed monthly premium for a wide variety of services that are stipulated when signing the health insurance plan. The good thing about this is that you know what you can and cannot claim – and how often and to what amount. The main limitation is that you are responsible for all your medical worries and do not have the professional advantage of an HMO.

The indemnity plan is useful for people who can reasonably foresee what they are going to need and include an amount for unexpected expenses (such a hospitalization and serious injury). This type of plan is not too popular in the US, despite being used as a viable model in other countries of the world.

The decision on which to choose is depends on whether you would want someone else to manage your health care for you or not. If you are a relatively healthy person and not prone to accidents – indemnity insurance can be the answer, however if you feel that you would rather have a net of support behind – HMO’s are the way to go.

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