Health Insurance - How It Works

Without health insurance, a single illness can cause serious, and often irrevocable, financial hardship. 

Insurance of any kind is intended to transfer financial risk to an insurance company in exchange for a reasonable insurance premium.  Where most insurance coverages pay once a loss has occurred, health insurance has the added benefit of paying to keep your loss from getting worse. 

Health insurance is probably your most important coverage since it can be the difference between life and death.

Fortunately, most employers offer some form of health insurance. Often you will have to select from several different alternative plans with differing coverages and premiums. 

There are two broad categories of health insurance coverage. One is fee-for-service and the other is managed health care. Under managed health care the two major types of plans are HMO's (health maintenance organizations) and PPO's (Preferred Provider Organizations). 

Fee-for-service plans pay providers (doctors, hospitals, etc.) a fee in return for the service they provide. Many companies negotiate special discounts from providers, but the basic concept is the same - the fee is paid according to the service provided.

Managed care plans (HMO's and PPO's) pay set fee providers in return for all of the care needed by a patient.  The technical term for this is capitation.  The basic idea is that the healthier patients will use fewer services helping offset the additional usage from the sicker patients. Managed care plans also emphasize preventative care.

The first HMO's were "clinic models."  In those, members went to a clinic for services. Later models used individual doctors' offices, but the doctor was paid by the patient - not by the service.  In an HMO, the primary care physician serves as the gatekeeper to the rest of the medical world and members normally need a referral from the primary care physician in order to have the service covered.

Preferred Provider Organizations allow members more flexibility but encourage them to stay within a network of providers who have agreed to provide services at discounted fees. Generally, a PPO member doesn't need a referral from the primary care physician to see a specialist.

A managed care organization MAY provide some payment for services provided outside of the network. Generally, that payment is according to a set schedule. The patient is liable for any difference.  Managed care organizations also have provisions for payment for emergency services and services out of their coverage areas, but the rules vary greatly from plan to plan.

If you're a business owner or you are self-employed, you'll want to look into health insurance for yourself and/or your employees. We can help you find just the right plan for your situation.