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Traditional vs. Managed Care
By the Virginia Bureau of Insurance
When selecting or purchasing health care coverage, it is important to understand the difference between traditional health insurance and managed care health insurance plans, (called "Managed Care" or "MCHIPs" in Virginia).
Traditional Insurance plans generally allow you to go to the provider, (physician, hospital, etc.), of your choosing, but require that you pay for the services and file (or allow your physician or provider to file) claims for reimbursement. Managed Care Health Insurance Plans use networks of selected doctors and other providers to provide health services. In return for using the network of providers, or "staying within the network" you typically pay less for medical care than you
would with traditional health insurance.
Traditional health insurance and Managed Care plans provide protection through many types of policies and plans, and at many prices. Some policies or plans pay most of your healthcare bills or provide most healthcare services for illness or injury. Others will cover only certain illnesses or injuries. Some pay an amount directly related to your health care costs. Others pay a set amount for each day that you are in the hospital, without regard to your actual bills. Some plans restrict care to certain providers and require that a primary care provider (a PCP) manage all care.
Types of Managed Care Health Insurance Plans
Health Maintenance Organizations (HMOs) are the most familiar form of managed care plans. HMO members pay a fixed dollar amount, usually monthly, which gives them access to a wide range of healthcare services. Members pay a predetermined fee or co-payment for each hospital visit, doctor, or emergency room visit, and for prescription drugs, rather than paying the provider in full and obtaining a portion of the reimbursement later. HMOs generally eliminate the need to file claims.
When you enroll in an HMO, you must select a primary care physician (PCP) to manage your healthcare. With a few exceptions, you must first consult with your PCP for healthcare needs. If necessary, your PCP may refer you to an HMO approved specialist. If you do not get approval from your PCP before you seek medical care, you may be responsible for payment for those services.
As HMO carriers continue to seek ways to contain costs while responding to consumers' changing needs for healthcare services and benefits, HMO plan designs also continue to change. Some of the newer plan designs may offer more services without PCP approval, and/or different forms of cost-sharing, including the requirement for an enrollee to pay an annual deductible for certain services rather than a copayment for each specific service.
Preferred Provider Organization (PPO) plans issued by an insurance company are plans that provide higher reimbursement if you go to a "preferred" or "participating" provider that provides services to health plan members for discounted fees. Insured individuals choose who will provide their health services, but they pay less in out-of-pocket expenses with a preferred (participating) provider than with a nonpreferred (non-participating) provider.
Point of Service (POS) Plans offer HMO enrollees the option of receiving services outside the HMO's network. Inside the network, the plan operates like an HMO. POS plans offer lower out-of-pocket costs to the enrollee using the services of providers inside the network. In a POS plan, insured members choose, at the point of service, whether to receive care from a healthcare provider within the plan's network or to go out of the network for services. POS plans offer less
coverage for health care expenses provided outside the network than for expenses incurred within the network. Visits outside the network normally require the payment of deductibles and coinsurance.
What's the Difference Between Managed Care and Traditional Health Insurance?
There are a number of significant differences between managed care plans and traditional health insurance policies. You should consider these differences when deciding what type of plan best suits your needs.
Under Managed Care plans, your choice of providers may be limited to those within the network, or your out-of-pocket costs will be lower when you obtain services from providers within the network. Under a traditional health insurance policy, you may select your own providers. Under some Managed Care plans, the provider receives a preestablished fee regardless of the amount of service performed. A provider may receive a flat fee for each patient in the plan, or he or she
may receive a negotiated fee for each service performed. Under traditional health insurance plans, the provider bills you each time you receive care or treatment.
Under an HMO plan, you must live, work or reside within the plan's service area in order to be eligible for coverage. Under a traditional health insurance plan, you are covered regardless of where you live, work or reside.
Under Managed Care plans, normally a PCP manages your medical care, and, with some exceptions, you must receive a referral from your PCP in order to obtain the services of a specialist. Under a traditional health insurance plan, you do not have a PCP, and you do not need a referral to see a specialist.
Types of Traditional Health Insurance Policies
Basic health insurance (hospital/surgical) policies provide benefits related to hospitalization costs and associated medical expenses of an insured. Typically, these benefits include room and board and other hospital services such as x-ray and lab expenses and operating room use.
Hospital/Surgical policies may provide "first-dollar" coverage. This means that there is no deductible for the policyholder to pay, and, therefore, no initial out-of-pocket expense. Although there may be little out-of-pocket expense for the policyholder in the event of a short-term hospitalization or routine surgery, lengthy hospitalizations and costly medical care are usually
not covered by these policies. As a result, unless you have other insurance, you may incur sizable expenses that are difficult to meet.
Major medical insurance plans provide coverage for medical services in and out of the hospital. Major medical plans may also cover the costs of blood transfusions, prescription drugs, and out-of-hospital costs, such as doctor visits.
Major medical policies typically pay a percentage of covered expenses and allowable charges after you pay an annual deductible. You then pay the remaining percentage of covered expenses as coinsurance.
Many companies offer coverage that combine Basic and Major Medical Plans into one policy. These policies are often called Comprehensive policies. Major Medical and Comprehensive policies typically contain lifetime limits on benefits to be paid under the policy. It is important to make sure a lifetime amount is adequate to cover losses in the event of catastrophic illness or injury.
Hospital confinement indemnity insurance provides a predetermined flat benefit amount for each day, week, or month an insured is hospitalized up to a designated number of days. Hospital confinement indemnity policies are available directly from insurance companies, by mail, or through insurance agents. As with any product that offers many choices, these policies require care in matching the plan to your needs. Some policies contain limitations on pre-existing conditions (however, limitations for pre-existing conditions may be reduced in certain circumstances). Others contain an elimination period; this means that benefits will not be paid until after you have been hospitalized for a specified number of days.
When you apply for the policy, you may be allowed to choose from two or three elimination periods, with different premiums for each. Although you can hold premiums down by choosing a longer elimination period, you should bear in mind that most patients are hospitalized for relatively brief periods of time. If you do buy a hospital confinement indemnity policy, with fixed benefit dollars, consider a periodic review and increase of the daily benefits to keep pace with rising health care costs.
Disability income insurance policies provide replacement income for a specific period if you suffer a disability and cannot continue to work. The disability may involve sickness, injury, or a combination of the two. Employers may offer short-term and/or long-term disability coverage. Social Security also provides disability protection, but only for those that are severely disabled and unable to work. Most disability income policies coordinate with Social Security benefits and workers' compensation to eliminate duplication of coverage.
When buying a disability income policy, you should find out the company's definition of a disability and the requirements that must be met. An insurance company paying for a disability claim may require the policyholder to provide a written doctor's report. The frequency of this requirement depends on the particular policy. Examine your disability income policy carefully:
- Benefits are usually a percentage of your income at the time of purchase, but cost-of-living adjustments may be available.
- Know how your policy defines "disability." Eligibility for benefits is based on this definition. Is eligibility based on the premise that you are unable to perform the substantial or major duties of your regular occupation? Or, is eligibility based on your inability to engage in any occupation or employment for which you are qualified because of your education, training, or experience? Or, is there a dual definition?
- Review the benefit as it relates to the cause of the disability. You want to be insured if disability is caused by accident, illness or injury.
- Please be aware that disability income insurance policies include an elimination period (the length of time you must wait after the onset of disability, before benefit payments begin.) Benefit
payments may actually begin several months or more after the onset of the disability.
- Consider disability income insurance that pays benefits to at least age 65. Disability income benefits are designed to replace earned income. A lengthy disability can threaten financial security.
Specified disease insurance policies provide benefits for medical expenses associated with specific diseases named in the policy. For example, cancer policies pay benefits for expenses incurred in connection with treatment of cancer. Benefits are usually limited in amount. Some policies may limit coverage to the first occurrence of the disease. These policies often pay the insured directly for the benefits available under the policy regardless of payments for medical
care under other plans.
Short-term or temporary health insurance policies provide coverage that lasts only for a specified period of time. For example, you might purchase a one-month policy with major medical coverage for a brief period of unemployment.
Limited Benefit Health Policies: Minimum standards were established in Virginia to insure that individual accident and sickness policies provide a minimum of basic benefits needed for health care. A company may market an individual accident and sickness policy that does not meet these minimum standards, as long as it discloses that the benefits are limited and describes, in detail, the limitations. Contact your agent regarding your policy and minimum standards.
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