A medical care plan is a generic name for any program that pays or provides reimbursement for direct medical care expenditures. When a medical plan is available as an employee benefit, the employer typically pays the cost for the worker (and possibly other members of the worker’s immediate family) for the lowest-cost plan the employer offers. Employees can choose a higher-priced option or add family members to the coverage by paying an additional charge. New employees generally must make a choiceamong the available plans within the first few days of being hired.
Health Maintenance Organizations
Health maintenance organizations (HMOs) provide a broad range of health care services for a set monthly fee on a prepaid basis. For the specific monthly fee, HMO members receive a wide array of health care services, including hospital, surgical, and preventive medical care. Some HMO plans require a small copayment of $5 to $20 for each office visit or prescription. A goal of HMOs is to catch problems early, thereby reducing the probability of subsequent high-cost medical treatment. HMO services are available to both groups and individuals. The monthly fee charged by an HMO is based on the medical services that the average plan member would tend to use. HMOs do not put dollar limits on how much health care can be used. Instead, they list the types of medical care they will provide under the contract. HMOs are one of several types of managed care plans.
Health maintenance organizations (HMOs) provide a broad range of health care services for a set monthly fee on a prepaid basis. For the specific monthly fee, HMO members receive a wide array of health care services, including hospital, surgical, and preventive medical care. Some HMO plans require a small copayment of $5 to $20 for each office visit or prescription. A goal of HMOs is to catch problems early, thereby reducing the probability of subsequent high-cost medical treatment. HMO services are available to both groups and individuals. The monthly fee charged by an HMO is based on the medical services that the average plan member would tend to use. HMOs do not put dollar limits on how much health care can be used. Instead, they list the types of medical care they will provide under the contract. HMOs are one of several types of managed care plans.
Such plans seek to control the conditions under which health care can be obtained. Examples of controls include preapproval of hospital admissions, restrictions on which hospital or doctor can be used, and mandates regarding the type of procedures that will be employed to treat a specific medical problem. HMO subscribers are assigned a primary-care physician by the HMO or choose one from an approved list. The primary-care physician usually must order or approve referrals to specialized health care providers (for example, a cardiologist) within or outside the HMO. If the HMO itself does not provide a particular type of care, it refers the patient to a local hospital or clinic for those services. One HMO variation is the individual practice organization (IPO), a structure in which the HMO contracts with—rather than hires—groups of physicians. These physicians maintain their own offices in various locations around town and serve as the primary-care physicians and specialists for the HMO.
Traditional Health Insurance
Health insurance provides protection against financial losses resulting from illness and injury. It may cover hospital, surgical, and other medical expenditures. These coverages can be purchased separately, but most consumers and employers prefer comprehensive health insurance because it combines these protections into a single policy with policy limits of $1 million or more. Unlike with HMOs, where you are prepaying for health care in advance, health insurance is based on the concept of reimbursement for losses, with the patient choosing the type of care based on the advice of his or her physician. For this reason, health insurance plans are often referred to as indemnity plans because they compensate the insured for the cost of care received.
Health insurance plans often identify a preferred provider organization (PPO). A PPO is a group of medical care providers (doctors, hospitals, and other health care providers) who contract with a health insurance company to provide services at a discount. This discount is then passed along to the policyholders in the form of reductions or elimination of deductibles and coinsurance requirements if they choose the PPO providers for their medical care. Consider the case of Dru Cameron, who works for a large marketing firm in Charlotte, North Carolina. Her firm’s health insurance plan has contracted with a PPO representing a local university’s teaching hospital and its affiliated physicians. Because Dru chose the university hospital for treatment of a broken ankle, she saved $150 on the $250 deductible and did not have to pay the usual 20 percent coinsurance share of office visit charges. She gave up the right to go to her family doctor, who is not a PPO member, although she could still see that physician for other health care needs in the future.
A provider-sponsored network (PSN), also called a provider-sponsored association is a group of cooperating physicians and hospitals who have banded together to offer a health insurance contract. Such networks operate primarily in rural areas, where access to HMOs may be limited. As a group, the members of the PSN coordinate and deliver health care services and manage the insurance plan financially. They contract with outside providers for medical services that are not available through members of the group.
Consumer-Driven Health Care
Consumer-driven health care is a term describing an approach to medical care that is different than that of typical HMOs and traditional health insurance. With these two latter approaches, consumers pay very little out of their own pocket for their medical care and, thus, have little incentive to minimize health care spending. The principle behind consumer-driven health care is that knowledgeable and informed patients/employees will spend their own money more carefully than they would spend an employer’s or health plan’s funds. Therefore, consumer-driven plans require higher out-of-pocket spending by consumers so that they will shop around, compare prices, pick and choose among options, and all the other things consumers normally do when making expensive purchases
Consumer-driven plans are based upon a high-deductible health care plan that can either be traditional health insurance or an HMO. Deductibles can start at $1100 ($2200 for a family) but can be as high as $5000 per year. The plans will have an out-ofpocket limit of $5500 for an individual or $11,000 for a family per year. High-deductible plans have lower premiums than other plans because workers pay a larger portion of health care bills. Employers like the plans for this reason. But people who must buy their own health care plan might find the lower premiums attractive as well. The question, then, is how to afford the high out-of-pocket cost when medical care is needed. The answer is with a health savings account (HSA) or a health reimbursement account (HRA). An HSA is a tax-deductible savings account into which individuals and/or their employers can deposit tax-sheltered funds for use to pay medical bills including deductibles and other out-of-pocket costs. The maximum annual deposit is either the annual deductible under their high-deductible plan or $2900 for an individual or $5800 for a family plan, whichever is lower. An HRA consists of funds set aside by employers to reimburse employees for qualified medical expenses. Thus, the employer helps employees pay their medical bills.
Traditional Health Insurance
Health insurance provides protection against financial losses resulting from illness and injury. It may cover hospital, surgical, and other medical expenditures. These coverages can be purchased separately, but most consumers and employers prefer comprehensive health insurance because it combines these protections into a single policy with policy limits of $1 million or more. Unlike with HMOs, where you are prepaying for health care in advance, health insurance is based on the concept of reimbursement for losses, with the patient choosing the type of care based on the advice of his or her physician. For this reason, health insurance plans are often referred to as indemnity plans because they compensate the insured for the cost of care received.
Health insurance plans often identify a preferred provider organization (PPO). A PPO is a group of medical care providers (doctors, hospitals, and other health care providers) who contract with a health insurance company to provide services at a discount. This discount is then passed along to the policyholders in the form of reductions or elimination of deductibles and coinsurance requirements if they choose the PPO providers for their medical care. Consider the case of Dru Cameron, who works for a large marketing firm in Charlotte, North Carolina. Her firm’s health insurance plan has contracted with a PPO representing a local university’s teaching hospital and its affiliated physicians. Because Dru chose the university hospital for treatment of a broken ankle, she saved $150 on the $250 deductible and did not have to pay the usual 20 percent coinsurance share of office visit charges. She gave up the right to go to her family doctor, who is not a PPO member, although she could still see that physician for other health care needs in the future.
A provider-sponsored network (PSN), also called a provider-sponsored association is a group of cooperating physicians and hospitals who have banded together to offer a health insurance contract. Such networks operate primarily in rural areas, where access to HMOs may be limited. As a group, the members of the PSN coordinate and deliver health care services and manage the insurance plan financially. They contract with outside providers for medical services that are not available through members of the group.
Consumer-Driven Health Care
Consumer-driven health care is a term describing an approach to medical care that is different than that of typical HMOs and traditional health insurance. With these two latter approaches, consumers pay very little out of their own pocket for their medical care and, thus, have little incentive to minimize health care spending. The principle behind consumer-driven health care is that knowledgeable and informed patients/employees will spend their own money more carefully than they would spend an employer’s or health plan’s funds. Therefore, consumer-driven plans require higher out-of-pocket spending by consumers so that they will shop around, compare prices, pick and choose among options, and all the other things consumers normally do when making expensive purchases
Consumer-driven plans are based upon a high-deductible health care plan that can either be traditional health insurance or an HMO. Deductibles can start at $1100 ($2200 for a family) but can be as high as $5000 per year. The plans will have an out-ofpocket limit of $5500 for an individual or $11,000 for a family per year. High-deductible plans have lower premiums than other plans because workers pay a larger portion of health care bills. Employers like the plans for this reason. But people who must buy their own health care plan might find the lower premiums attractive as well. The question, then, is how to afford the high out-of-pocket cost when medical care is needed. The answer is with a health savings account (HSA) or a health reimbursement account (HRA). An HSA is a tax-deductible savings account into which individuals and/or their employers can deposit tax-sheltered funds for use to pay medical bills including deductibles and other out-of-pocket costs. The maximum annual deposit is either the annual deductible under their high-deductible plan or $2900 for an individual or $5800 for a family plan, whichever is lower. An HRA consists of funds set aside by employers to reimburse employees for qualified medical expenses. Thus, the employer helps employees pay their medical bills.
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