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Health Insurance: How's Your Coverage?

In today's day and age, securing health insurance coverage privately, or through an employer, is essential from both a personal and financial perspective. When the time comes to choose among various types of health care coverage, it’s important to gain an understanding of the different types of plans that are available.

Three types of basic health care plans, each with its own advantages and disadvantages, provide benefits to the majority of insured Americans. Here’s a brief look at each plan:
  • Traditional health plans. Care is based on fee-for-service payment. Each time you receive medical care, the doctor or hospital totals the charges and submits a bill through you to your insurance carrier. For the provider, this type of plan can create incentives to admit patients and use services. Advantages include the ability to choose doctors and hospitals and to receive comprehensive coverage for accidents and illnesses. Disadvantages may be higher premiums due to lack of cost control and limited coverage for preventive health care. Health care costs can be decreased under the traditional plan if a larger deductible and a greater use of co-insurance are selected.
  • Health maintenance organizations (HMOs). Under these plans, all medical care is prepaid through a monthly premium. Doctors participating in an HMO are paid a salary rather than through patient fees. To keep within the HMO’s budget, doctors have an incentive to be more efficient and to practice preventive medicine to avoid more costly care. With this emphasis on “wellness,” HMOs cover a full range of services including prenatal and postnatal infant care, as well as routine physicals and screenings. Advantages include comprehensive coverage for most health care needs with an emphasis on prevention. Disadvantages for the insured include a limited choice of doctors within the HMO and admission to only those hospitals designated by the HMO.
  • Preferred provider organizations (PPOs). These combine aspects of both a traditional system and the HMO. PPOs represent groups of hospitals and/or physicians that contract with employers and insurers to provide comprehensive health coverage at competitive rates. PPOs offer a broad range of coverage and stress preventive care. Individual employers can design a plan to cover more outpatient services if medically necessary. Advantages include choice of doctors and hospital facilities, comprehensive coverage for most health care needs, and an emphasis on prevention. One disadvantage is the possibility of additional fees for using providers outside the PPO plan.
While each type of medical care plan offers advantages and disadvantages, generally speaking, monthly premiums tend to direct which type of plan an employer or individual will choose.

You should make certain that your financial responsibility, under your current health insurance plan, will not overburden your cash flow or borrowing ability. Understanding how large medical claims can impact your financial situation, and being prepared, are extremely important.

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