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Health Plan Basics

When people talk about health care coverage, they are usually referring to health plans offered by traditional insurance companies and health maintenance organizations (HMOs). These plans may pay for most, and sometimes all, of the treatment costs for sicknesses and injuries. Health plans can generally be classified as one of two types, "fee for service" or "managed care." Many people obtain health coverage as part of a group - such as an employer, professional association, or other organization - that offers health coverage to its employees or members. Others may buy individual health coverage directly from an agent or carrier. The type of plan you have and how you obtained it usually determines the benefits that are included, how you access and receive medical care, and what you will have to pay out of pocket.

Fee for service vs. managed care

Fee-for-service plans, often called "indemnity plans," are sold by traditional insurance companies. With a fee-for-service plan, you can go to any doctor or provider you want, and you donýt need a referral to see specialists. A fee for service plan will generally pay for most, but not all, of the health care costs for medical conditions covered by the policy and deemed "medically necessary."

Often your provider will have an established relationship with your insurer, and will bill the company directly for its share of the costs. In some cases, however, you will have to pay the full bill up front and then file a claim with your insurance company for reimbursement. Texas law requires companies to pay claims promptly, but it may take several weeks for your reimbursement.

With a fee-for-service plan, you will pay:

• Premiums. A premium is a set fee to participate in the plan. You'll have to pay premiums for as long as you have coverage. The premium amount is determined by the coverage included in your plan, the plan's features, and the health risk factors of you or your group's members. If you have a plan through your work, your premium will likely be deducted from your paycheck. Employers who offer health plans usually contribute toward some or all of the premium costs, but are not required to do so.
  
  
• Deductibles. A deductible is an amount that you must pay out of your own pocket before your plan will contribute toward your health care costs. If you have a family plan, the deductible may apply to your entire family, or each individual may have a separate deductible. You will usually have to meet your deductible each year. Many carriers offer high-deductible options for plans. In general, the higher your deductible, the lower your premium.
  
  
• Coinsurance. Once you have met your deductible, most fee-for-service plans will pay a percentage of the remaining cost for covered health services and require you to pay the rest. This cost-sharing is called coinsurance. The coinsurance will vary by plan. For instance, some plans may pay 80 percent of the cost, leaving you to pay 20 percent, while others may pay 70 percent, leaving you to pay 30 percent. In Texas, health plans must pay at least 50 percent of the cost of covered services after the deductible has been met. As with deductibles, the higher the amount you pay in coinsurance, the lower your premium will be.

Note: Most fee-for-service plans will pay only up to a maximum amount, such as $1 million, during your lifetime toward your total medical expenses or for certain medical conditions. This is called a "lifetime maximum."

Managed care plans are a different approach to health coverage. Managed care plans use "networks" of selected doctors, hospitals, clinics, and other health care providers that have contracted with the plan to provide comprehensive health services to the plan's members. Some managed care plans require you to seek routine care only from providers within the plan's particular network. Others pay for care from any provider, but offer financial incentives for using providers within the network.

In general, managed care plans are more affordable than fee-for-service plans that offer comparable levels of coverage. Managed care networks provide a built-in clientele for network providers, allowing them to charge lower rates. And the networks can reduce overhead by centralizing billing and administrative functions. Managed care plans will not pay for services not deemed medically necessary. If the plan covers prescription drugs, it may have a list, called a "formulary," which specifies the drugs it will cover. In addition, managed care plans control costs by emphasizing preventive care in an attempt to avoid serious medical conditions that would later require more expensive treatment.

In general, the trade-off for managed care is reduced choice for increased affordability.

There are three main types of managed care plans offering different levels of choice:

1. HMO plans are typically the most affordable of all health plans. HMOs generally require you to receive health care only from providers within the HMO's network. There are exceptions for medical emergencies and when medically necessary services are not available within the network. With an HMO, youýll choose a "primary care physician" from a list of doctors in the HMO's network. The role of a primary care doctor is much the same as a traditional family doctor. With very few exceptions, your primary care physician oversees all of your medical care and provides referral to specialists and other providers.
   
   HMOs usually pay primary care physicians a set monthly fee - called a capitation fee - for each member, regardless of the amount of covered services performed.
   
   
2. Point of Service (POS) are also administered by HMOs, but allow members the option of going outside the network for care without having to receive prior approval from a network physician. Inside the network, the POS plan operates like an HMO. If you go outside the network, a POS plan works like a fee-for-service plan. Youýll have to pay a higher share of the cost of out-of-network care, however. A POS plan may exclude the option for out-of-network care for certain medical conditions. POS coverage is often offered as a "rider," or special policy add-on, to existing HMO coverage for an added fee. The POS option involves an HMO evidence of coverage for the in-network services and an insurance company certificate of coverage for the out-of-network benefits. Thus, plan members have a "dual contract" for the POS plan. Accordingly, inside the network, the POS plan operates as specified in the HMO evidence of coverage and, outside the network, it works as specified in the insurance carrier's certificate of coverage.
   
   
3. Preferred Provider Organization (PPO) generally offer the most choice of any type of managed care plan. PPO plans are similar in concept to POS plans, except that they are administered by insurance companies. You are free to receive health care from any provider, but you pay lower deductibles and less in coinsurance if you use providers in the PPO's network. PPO networks tend to be more loosely organized than HMO networks, and the law prohibits PPOs from requiring you to select a primary care physician. Also, unlike in an HMO, PPO physicians are not paid flat fees for their patients. Instead, providers agree to charge the sponsoring insurer a contracted rate.

With a managed care plan you will pay:

• Premiums.
• Deductibles.
• Copayments. Copayments are amounts you pay each time you receive a covered medical service, such as a doctor visit or a prescription drug. Most managed care plans usually have a maximum out-of-pocket expense that youýll have to pay in copays and deductibles over a certain period, usually a year. When you reach this amount, your plan will pay 100 percent of all further costs.
  
• Coinsurance. This is the percentage of the cost for health care services that you must pay, after you have met your deductible. Coinsurance usually only applies to out-of-network care in PPO and POS plans. Avoiding or reducing coinsurance is a common incentive for remaining inside a managed care network.

Plan comparisons

Your rights in an HMO

Texas has some of the most comprehensive patient protection laws in the nation.

All HMOs must have an internal appeals procedure to allow members to contest a decision to deny medically necessary treatment, including denials of medications that are not on the HMO's formulary. Denials based on medical necessity or appropriateness are called "adverse determinations." After you exhaust your appeal rights within the HMO, you can request an Independent Review Organization (IRO) to review the denial. The IRO may agree with the HMO's decision or reverse the HMOýs decision. The HMO must pay for the review, and the IRO's decision is binding on the HMO.

An IRO review is not available in all cases and is only available if the HMO decides that the covered service or treatment is not medically necessary. For example, the IRO review is not available if the decision to deny coverage is due to an exclusion in your contract. In addition, not all health plans are subject to the IRO review process. You should contact your plan to determine whether an IRO review is available to you when services or treatments are denied.

Note: The IRO process is also applicable to an indemnity plan (such as a PPO) if the plan issues an adverse determination.

The HMO must have a procedure to resolve complaints from members and a procedure for the member to appeal the decision if not satisfied with the resolution of the complaint. HMOs may not cancel or retaliate against a group contract holder (employer), a doctor, or a patient who files a complaint against an HMO or appeals an HMO's decisions.

HMOs may not prohibit doctors from talking to you about your medical condition, treatment options, and terms and requirements of your health care plan, including how to appeal an HMO's decision. An HMO also may not provide financial rewards to doctors for withholding necessary care.

Texas law provides the following additional protections by requiring that HMOs:

• have adequate personnel and facilities
• make covered health care services available within a certain mileage from your home, residence, or workplace
• allow referrals to out-of-network providers when medically necessary covered services are not available within the network
• allow members with chronic, disabling, or life-threatening illnesses to use specialists as their primary care physicians under certain circumstances
• allow members to continue seeing providers no longer with the network for specified periods of time if there are special circumstances, such as a terminal illness, disability, life-threatening condition, or pregnancy as long as the provider agrees to continue treatment at the HMO's contracted rate
• pay for care in an emergency facility to evaluate and stabilize medical conditions of recent onset and severity that would lead a prudent layperson with an "average knowledge of medicine and health" to believe that failure to get immediate medical care could place your health in serious jeopardy, or which could seriously jeopardize the health of the fetus if you are pregnant. If emergency treatment is provided by a facility outside the HMO's network, the member may be transferred to a network facility and physician once the patient's condition is stabilized.