Commercial Insurance

People buy health insurance to pay unexpected costs of care from illnesses.  It is supposed to pay for your health care. Health insurance plans should pay the bills from your doctors, hospitals, and other providers. Health insurance is supposed to protect you from losing your house, or going bankrupt, in the event of a serious illness.

In the United States, most people currently obtain their health insurance from private organizations or from government agencies. Most employed Americans get health insurance from work. Common plans include HMO's and PPO's offered by companies like Kaiser, Healthnet and Blue Cross.  The U.S. government operates publicly funded health insurance programs for the poor and the elderly (called MediCare and Medicaid).

People who pay for their health insurance do so in many ways. Some, who are employed at companies that provide health care, may obtain coverage as a benefit of employment.  Others pay for a portion or for all of their health insurance.  For people who pay for a portion of the costs, their employers deduct money from every paycheck for the health insurance.  People who do not receive health insurance through their jobs can purchase private health insurance policies directly from any of a number of insurance companies. 

Doctors sign up to accept health insurance plans.  Most doctors accept only a small number of health insurance plans.  Many do not take Medical.  Some do not sign up for HMO type plans.  Some insurance plans (like Kaiser)  do not allow anyone to provide care unless they are employed by the insurance plan (like Kaiser).

TYPES OF INSURANCE

Indemnity Plans

Under this type of plan, the patient may visit any health care provider, such as a doctor or hospital. The patient or the medical provider then sends the bill to the insurance company, which typically pays a certain percentage of the fee after the patient meets the policy’s annual deductible. For example, a fee-for-service plan might pay 80 percent of a medical bill, leaving 20 percent for the patient. Most indemnity plans also limit the amount that the patient must pay per year.  For example, a patient might not have to pay more than $2500 or $5000 per year maximum..

These plans are considered the best health insurance.  They are accepted by all doctors.  They cover almost all services and allow the patient to choose his or her doctor.  They allow the patient to choose the type of treatment which they will receive.  These plans typically cover a greater percentage of the costs of medical care than do other plans.  Indemnity plans are the most expensive to purchase.

Before 1970 most Americans had this type of health insurance.

Managed Care Plans

Managed care plans are those where the insurance company can tell you which doctors you can see and limit your access to some treatments. The insurance companies limit your care to save money. The plans are much less expensive than indemnity insurance.

Managed care organizations finance medical care in ways that are intended to provide incentives for patients to maintain good health. For example, managed care plans may reimburse patients for treatments to help them stop smoking.

Managed care plans also attempt to make both patients and doctors aware of the costs associated with their health care decisions. Advocates of managed care claim that by emphasizing health maintenance and illness prevention, managed care organizations reduce the number of expensive medical treatments in the long run. Critics of managed care argue that the plans make it difficult to obtain expensive medical care. Critics argue that the insurance companies use managed care plans to ration care. The insurance companies typically prefer managed care since their profits are generally higher and their risks are generally lower.

By the mid-1990's most Americans were insured by managed care plans.

Managed care health insurance plans include (1) health maintenance organizations or HMO's, (2) preferred provider organizations or PPO's, (3) point-of-service plans or POS's, and (4) other less common plans.

Managed care plans have limited benefits. The sample form at left is representative. It shows that the plan doesn’t pay anything until after the patient pays the first $750 per person or $1500 per family (the deductible). The patient pays 30% of costs when a provider is not “in network” and the patient pays at least $30 per visit as a copayment for each doctor’s visit. For non-network providers, the plan pays less than for doctors in the network and payment maximums may be far lower than the cost of your doctor’s care.

Health Maintenance Organizations

Health maintenance organizations (HMOs) are the least expensive and most restrictive of the managed care programs.  They only allow certain treatments and only allow patients to see certain doctors.  In California the largest HMO is Kaiser.  Proponents argue that HMO members generally receive excellent coverage of routine health care services, but critics state that the patients face restrictions on their choices of doctors and hospitals.

The HMO determines which doctors are available to its members. Kaiser Permanente, is both an insurer and a provider. It hires doctors and builds its own hospitals. Patients in a group practice must choose a a primary care physician, or PCP.  That PCP then manages all of their health care.  PCP's are rewarded for keeping costs down. An independent practice association, or IPA, is a group of doctors who provide reduced cost services.  In an IPA patients must obtain all their care from doctors within the group.

Preferred Provider Organizations 

Preferred provider organizations (PPO's) combine characteristics of traditional insurance plans and HMOs.  They are more expensive than HMO’s and less restrictive.  PPO's establish contractual agreements with health care providers, who accept lower fees for services rendered to PPO members. PPO members who use the services of participating providers will generally receive more benefits than those who choose the services of health care providers not on the preferred list. Participants’ costs will be higher if they go outside the “network of preferred providers.”

Point-of-Service Plans

Point-of-service (POS) plans combine aspects of indemnity health insurance policies with some elements of PPO’s. Like PPO’s, point-of-service plans establish contracts with health care providers who agree to offer services to plan members. Unlike PPO’s, which require participants to select a preferred provider in advance, point-of-service plans allow participants to choose at the time they need health care whether to seek treatment within the plan's network of health care providers or outside the network. The costs are higher than HMO’s and PPO’s but the patient has more freedom to choose his or her health care provider and to obtain the care they want.

Non-participating Provider

A doctor who does not accept a particular plan, or who has not signed the insurance company contract, is considered “non-participating.”  Generally it is much more expensive for a patient to use doctors who are not in the insurance company’s discount provider network.

Negotiated Fees

The amount of money that a doctor or hospital has agreed to accept for particular services or equipment is called the “fee-schedule amount” or “negotiated fee.”  Generally this is a discounted rate, less than the usual charges in a given area.

Government-Funded Plans

Established by the U.S. Congress in 1965, Medicare and Medicaid offer basic health care coverage to qualified individuals, but these programs do not always provide access to comprehensive medical treatment. Limited funding for these programs can also lead to long waiting periods for nonemergency procedures.

Disability Insurance

Another type of health insurance coverage is disability insurance, which provides some health care and some income replacement when an accident or illness prevents someone from performing their job. One type of disability insurance is Workers’ Compensation insurance which is provided by the employer.  The other types (Short and Long term) are usually purchased by the employee. Short-term disability insurance usually covers the first six months of disability. Coverage for longer than six months is called long-term disability insurance.

Go to the next page on workers compensation.

Go to the next chapter on our hospitals.






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Last modified: 07/27/08