The three major types of health-care plans are as follows:

1. Private health-care plans
2. Nongroup coverage plans
3. Government-sponsored health-care plans

Private Health-care Plans

Private health-care plans are insurance plans that are sold by private insurance companies to individuals and employers as part of a benefits package. These plans are of two types: fee-for-service plans and plans provided by managed health-care providers.

Fee-for-service plans: These plans, also called traditional indemnity plans, are private health-care plans in which doctors bill patients directly; the insurance company then reimburses a specific percentage or set amount of the bill to the patient. The advantages of these plans are that they provide patients with the greatest flexibility in choosing doctors and hospitals and that individuals can go to whatever doctor or hospital they choose and still be reimbursed. Another advantage of these plans is that they define what percentage of each claim the policy will cover and what percentage the patient must cover. Finally, these plans clearly define how much the patient must pay before a claim is eligible for reimbursement. The disadvantages to these plans include that they are usually expensive and require more paperwork than other types of insurance plans.

Plans provided by managed health-care providers: Managed health-care providers are insurance companies that provide prepaid health-care plans for employers and individuals. There are four main types of managed health-care providers: health maintenance organizations (HMOs), preferred provider organizations (PPOs), point of service plans (POSs), and exclusive provider organizations (EPOs). One of the advantages of managed health-care providers is that these organizations pay for and provide health-care services to policyholders, including preventative health-care. Also, managed health-care providers generally pay bills more efficiently than other providers because managed health-care providers do not require you to pay your doctor’s bills and hospital bills first (with the exception of the nominal co-payment for visiting a doctor’s office).

However, one disadvantage of working with managed health-care providers is that they limit the number of doctors and hospitals that participate in their program, thereby limiting your choices. Like fee-for-service plans, plans provided by managed health-care providers require you to pay a monthly premium and to share the cost of care; however, these costs are traditionally less than the costs of fee-for-service health-care.

Health maintenance organizations (HMOs) provide prepaid insurance plans that entitle individuals to the services of specific doctors, hospitals, and clinics. These plans are the most popular form of managed health-care because of their low costs, which are roughly 60 percent less than the costs of fee-for-service plans. The advantages of HMOs include that they provide a system of doctors and hospitals for a flat fee, and these plans emphasize preventive medicine and efficiency. The disadvantage of HMOs is that they provide limited choices of doctors and hospitals. Because of these limited choices, the quality of service may suffer, and referrals to other specialist doctors are sometimes difficult to get.

Preferred provider organizations (PPOs) provide insurance plans that are essentially a cross between traditional fee-for-service plans and HMO plans. PPOs negotiate with a group of doctors and hospitals, and these doctors and hospitals provide care to PPO participants at reduced rates. PPOs then give individuals the option of choosing either “plan” or “nonplan” doctors. One advantage of PPOs is that they provide health-care for less than the cost of fee-for-service plans while still allowing members to choose their doctor or hospital. Because PPOs provide a group of doctors who work at reduced rates for PPO participants, PPOs assess an additional fee if the participant uses a nonplan doctor or medical center. PPOs are generally more expensive than HMOs.

Point of service plans (POSs) have many of the attributes of HMOs, PPOs, and fee-for-service plans. For example, these plans generally have a network of contracted doctors, hospitals, and clinics. If you use these preferred providers, the fees you pay are less. But you also have the option to go outside the network for additional or other medical specialists if you are willing to pay a larger out-of-pocket fee. These plans may have a gatekeeper (a physician or other authority) that must be notified before participants are allowed to receive services.

Exclusive provider organizations (EPOs) are similar to HMOs, but they operate through an insurance company. These organizations are funded through an insurance company, and health-care is provided by contracted providers. Only care received from contracted providers is covered, unless there is an emergency situation.