Types of Plans

Health Insurance 101

On the surface, medical insurance can seem very complex. But if you understand just a few terms and concepts it will become much clearer.

The Basics…

There are three categories of medical plans: individual, group and short-term (STM). All three have the following things in common. 1) The younger you are--the less they cost. 2) They all provide major medical coverage.

Individual plans are available to anyone and their family members. The plan cost is based on your age and your smoker status. All family members must provide health history information. Only five health plans offer individual plans in Washington State: LifeWise Health Plan of Washington, Regence Blue Shield, Premera Blue Cross, KPS Health Plans, and Group Heath Cooperative. The minimum deductible is $500.00. These plans provide adequate coverage for most people.

Group plans are available only to businesses. Some plans will cover groups of two to four employees, but groups of five or more will have additional plan options. Most group plans have better benefits than individual plans; however, they usually are more expensive. Most group plans do not require health history or smoker information.

Short-term plans are designed to be temporary. STM plans work well for people in between jobs or who only need coverage for a limited time. The plans do not cover preventive care or pre-existing conditions. The premiums are very reasonable and the coverage is fair.

Plan Types…

Traditional - Best Choice of Doctors. You may see any doctor any time. These plans are somewhat rare.

1) PPO (Preferred Provider Option) - Fairly common. You may freely see any doctor on an approved list. Sometimes there are out-of-network benefits that make the plan resemble a Traditional Plan.

2) POS (Point of Service) - Most Common. This is also called a managed care plan. You pick one doctor as your Primary Care Physician (PCP). Only your PCP can approve visits to specialists (your PCP acts as a “gatekeeper”). You can generally go out of the network to other doctors but your benefits are substantially reduced. Managed care plans usually contract with numerous private physicians/facilities. Managed care is often referred to as coordinated care. An important consideration is the size of the network.

3) HMO (Health Maintenance Organization) - Similar to POS plans except you rarely have out-of-network benefits. The network is usually just one specific facility that maintains tight control of your health care needs. Group Health Cooperative is the largest HMO in our area.

Terminology…

1) Deductible – The amount of approved medical charges you pay 100% of. Usually these are the first medical expenses you incur on your plan. The deductible amount can vary from $0 to $10,000 ($200, $500 or $1000 are quite common). Deductibles are often based on the calendar year, and are calculated per person. After you satisfy the deductible, the insurance begins to pay at the coinsurance rate. It is common to have a three deductible maximum per family on group plans and no family deductible max on individual plans.

2) Coinsurance – After you satisfy the deductible, the insurance pays future medical charges at the coinsurance rate. The coinsurance rate can range from 50% to 100% (80% is the typical rate). Thus, 80% coinsurance means the insurance pays 80% and you pay 20% of future medical expenses. The coinsurance rarely goes on indefinitely. Eventually the insurance will pay at 100%. This is point is called your stoploss.

3) Stoploss – The total amount you must pay in coinsurance before the insurance will pay 100% of future medical expenses. The stoploss amount is typically $2000. Now let’s use deductible, coinsurance and stoploss all together in an example. Your plan has a $500 deductible, 80% coinsurance and a $2000 stoploss. So, in a calendar year, the first $500 of allowed medical costs will go towards your deductible and you will have to pay 100% of these charges. For the next $10,000 in allowed charges the insurance will pay 80% and you will pay 20%. The insurance will pay $8000 and you will pay $2000. At this point you reach your stoploss so any future allowed charges will be paid by the insurance at 100%. When your deductible and stoploss are added together this gives you your Maximum Out-of-Pocket ($500 + $2000 = $2500).

4) Maximum Out-of-Pocket - This is the most you could incur in expenses for covered items based on your deductible and coinsurance.

5) Copays - Many group plans have you pay a modest copay when receiving certain services. Depending on the plan, you can have several copays associated with one visit. Example: One for the physician, one for lab work, and one for prescriptions. Generally, copays only apply to physician office calls and prescription drugs. Other services (such as hospitalizations, outpatient services, lab and x-ray, etc.) are usually subject to the deductible and coinsurance. There are no individual plans in Washington State that allow you to see a physician and only pay a copay. Rather these charges are subject to your deductible and coinsurance.

1) Pre-existing Conditions (PEC) – In Washington State, most plans define a PEC as a condition for which a diagnoses, treatment (including prescribed drugs), or medical advice was received within the six month period prior to the effective date of coverage. Services related to these conditions will not be covered until the applicant has been continuously covered for nine months under this plan.

Waiting periods for PEC’s may be reduced by periods of “creditable” coverage you’ve accrued under other health care programs prior to your enrollment date. If no prior coverage, then there is a nine-month wait for PEC’s. Additional stipulations may apply to organ, bone marrow, and stem cell transplants. Refer to your policy for complete details.

These definitions are for very general purposes and should not be construed to be a part of any contract. Every insurance policy varies and you should read your contract for a specific understanding of these definitions.