How Health Insurance Works

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July 27, 2021

A guide to health insurance

Health insurance refers to insurance cover for medical, surgical, and dental expenses of the policyholder.

Health insurance works by either paying the healthcare providers directly or reimbursing the insured after they pay for the expenses.

Health Insurance is essential, as it ensures that unforeseen circumstances do not leave you in a lurch financially. If you don’t know what type of insurance plan to go for, we have compiled a list of the health insurance policies available.

Types of health insurance

Preferred provider organization

In a preferred provider organization group insurance policy, there is a network of preferred doctors and hospitals linked to the insurance company. The plan members can choose to visit any of these doctors and hospitals and they’ll provide service at a discounted rate. These plan members do not need to allocate a primary care physician, or hospital to themselves. They have the freedom to see any doctor within the network.

Plan members can choose to seek services outside the network but at a higher out-of-pocket cost. The plan members have an annual payment they have to make before the insurance company can cover their medical bills. They may also have a co-insurance or co-payment plan for certain services. This plan makes them responsible for a percentage of their total medical expenses.

Health Maintenance Organization health insurance plans (HMO)

A Health Maintenance Organization group health insurance policy is an insurance plan that also offers a lower out-of-pocket cost. However, it doesn’t offer the freedom to choose between doctors, like the PPO. An HMO plan requires members to stick with a primary care physician (PCP). If you need to see a specialist, you need to get a referral from your PCP.

HMOs usually offer coverage for a wider range of preventive services, compared to other policies. Employees may or may not have to pay a deductible fee before their coverage begins, and they will have co-payment.

HMO plan members have no coverage if they seek services outside their insurer’s network unless they get proper authorization from their PCP, or in the event of certain emergencies.

Point of Service Health Insurance Plans (POS)

A point-of-service group health insurance policy is an insurance policy that combines features of both HMO and PPO plans. It requires plan members to choose a primary care physician (PCP) from the insurer’s network of providers, just like with HMO.

If a plan member uses services from their network of PCPs, they get higher coverage. If they, however, choose to use services by a non-network PCP, they become subject to a reduced level of coverage and a deductible. They may also need to pay upfront for the service and then submit a claim for reimbursement later.

Exclusive Provider Organization Health Insurance Plans (EPO)

Exclusive provider organization group health insurance policy is an insurance plan similar to HMO. EPO also uses a network of primary care physicians that each member must choose from, except in cases of emergency.

PCPs also provide referrals to specialists within the network. EPO may require that members pay a deductible, and also pay small co-payments. Seeking medical services outside the network however subjects plan members to higher out-of-pocket costs.

Indemnity Health Insurance Plans

Indemnity Health Insurance Plans are also called fee-for-service Insurance Plans. This is because a predetermined amount of cost is paid to plan members for covered service. For an indemnity health insurance plan, the plan member will first pay for the service out of their pockets, and then file a claim for reimbursement.

The plan members usually pay deductibles and coinsurance amounts. Indemnity health insurance members have the flexibility to choose any service provider they wish and are not restricted to a network of healthcare providers.

Health Savings Account Health Insurance Plans (HSA)

A Health Savings Account Health Insurance Plan is a tax-favored savings account, combined with a health savings account compatible and high deductible health plan. It serves as an alternative to traditional group health insurance plans.

HSAs are designed for individuals, though small businesses and companies can contribute to them too, using it as a group health insurance. It’s much cheaper than most group health insurance plans.

Health Reimbursement Arrangements (HRA)

A Health Reimbursement Arrangement is another alternative to group health insurance plans. With HRA, employers offer health benefits to their employees without using a group health insurance plan. Under an HRA structure, an employer reimburses the employee for out-of-pocket medical costs and premiums.

The HRA structure allows the employer to set a monthly allowance cap for the employees. Each employee then uses the allocated allowance to seek the health insurance policy most suitable for them. After purchasing the policy, the employee submits proof of purchase and gets reimbursement.

Conclusion

Health insurance policy helps to cushion the financial effect of medical and surgical expenses. This has become even more essential as the world battles a pandemic that has brought most economies to their knees. Several companies offer various enticing health insurance products. The internet has also made these companies very accessible. Seek the product that suits you and provide yourself with cover for the unforeseeable circumstances.