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HEALTH INSURANCE TYPES and DESCRIPTIONS

General Information

Health insurance is the type of insurance that helps to protect you (the policy owner) and your covered dependents from the high cost of medical care. To understand Health Insurance, there are a number of terms with which you should become familiar:

	Physician's Office Visit	When you are treated or receive consultation in a Doctor's office at his place of Private Practice.

	Outpatient Services	Services performed in a physician's office, a clinic, hospital's emergency room, ambulatory surgical center, or any medical facility that does not have hospital confinement capabilities.

	Inpatient Services	Services performed in a hospital when either you are your covered dependent is confined in a hospital.

	Hospital Expense	Daily room and board Miscellaneous expenses

	Physician's Expenses	Services performed by a non-surgical physician while you or your covered dependent is confined in a hospital.

	Nurse's Expense	Private duty nursing care while confined in a hospital.

	Convalescent care Expense	Skilled nursing facility expenses.

	Co-pay	This is an amount of money that you are required to pay from your pocket for treatment for yourself or your covered dependents. For example: a visit to the doctor may cost $100, but your Co-pay is $10. The insurance company would pay the doctor the remaining $90.

	Deductible	A deductible is the amount of money that you are required to pay for services rendered to you or your covered dependent before the insurance company begins to pay. Note: The insurance company will deduct this amount of money from the amount they pay the hospital, leaving you the responsible of paying the deductible amount.
		*Note: Depending on the type of service, you will pay either a Co-payment or the Deductible, but usually you are not required to pay both for a given service.*
	Coinsurance	This is a percentage participation in the cost of yours or your covered dependent's medical care in which you share in the cost of the care received. Ex.: You could be responsible for 20% of the charges and the insurance company would be responsible for the other 80% of the charges for say the next $10,000. Thereafter, the insurance company is responsible for paying all additional charges.

	Maximum-Out-Of-Pocket	This is the Stop-Loss feature of the insurance policy. It states the most money you or a covered dependent will ever spend in a given year for treatment if either you or your covered dependent were to incur a large medical expense. It is the total of the Deductible and the Coinsurance. Once the maximum OOP is reached, the insurance company is responsible for 100% of the remaining unpaid expenses.

	Pre-existing Condition	This is a condition that you or your covered dependent have before your policy went into effect. In many cases, the insurance company will not cover pre-existing conditions, but a company may cover pre-existing conditions after a policy has been in effect for one year or more depending on the pre-existing condition.

	Prescription Drugs	This feature of a health insurance policy helps to defray the cost of drugs prescribed to you or your covered dependent. You may be required to pay a Co-payment amount of for example $15 for a prescription, and the insurance company would pay the remaining amount.

There are may forms of Health Insurance. The most common ones are described in the sections that follow. Before selecting a type of Health Insurance, you should have a very good idea of what features are most important to you. For example: If cost is the underlying factor determining your choice of Health Insurance, then you should not expect to have Cadillac features in a Pinto like policy; You may have young children and have the need to visit the doctor often. In this case, an HMO may be the better type of Health Insurance for you; If you are of reasonably good health and only see a doctor once a year for your annual check-up, or if you want more freedom in selecting your doctors, then a PPO may be the better choice for you.

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Health Maintenance Organization (HMO)

HMO's are comprehensive pre-paid health care service plans which require you to be a paying member for you and your covered dependents to receive service from a participating provider (Physician) or facility. To be participating, the physician or the facility must have been contracted by the HMO to provide services to its members. HMO's cover every aspect of your health care involving the services of physicians and other medical personnel, and the services of hospitals and other medical facilities.

HMO members can be participants under a Group Health Insurance Plan or an Individual Plan. You (the member) pay a fixed monthly premium to the HMO, which in turn pays its providers a fixed fee per member per month. The fee paid to the provider covers the total cost of treatment for you and your covered dependents, and except for a small Co-payment you may be required to make for some services, there is usually no further payment required from you at the time of service. Unlike some health insurance that require a fee-for-service (at the time of service), HMO's services are pre-paid. Also, HMO's have no deductible and coinsurance, but they may have a separate co-pay for different services.

HMO's require that you select a Primary Care Physician for you and your covered dependents. In addition, your female dependents may select a Gynecologist. Your young children can have a Pediatrician as their Primary Care Physician. You can select a different Primary Care Physician for each covered member of the family. The Primary Care Physician is responsible for your health care. All health care services you or your covered dependents receive must be either done by your Primary Care Physician or approved by him/her to be done by someone else. This means that if you need the services of a specialist, this care must be approved and coordinated by your Primary Care Physician.

In hospital services is provided by the participating hospitals. You must receive your care from a participating hospital or you could be held responsible for the cost of your in hospital care. In an emergency or while traveling out of the area served by your HMO, you are allowed to see a doctor or seek treatment at a hospital outside of the HMO's provider and facilities network. If it's a true emergency, then the HMO will most likely pick up the cost of your treatment.

One last thing to note is that most HMO's operate in a geographically small area when compared to other types of Major Medical Health Insurance. For example; some HMO's may only cover yours and the adjoining county. Therefore, any treatment received outside of the two counties, even though it may be less than 20 miles away would most likely not be covered.

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Preferred Provider Organization (PPO)

A preferred provider organization (PPO) is a network of health care providers, such as physicians, hospitals and clinics that offer their services to certain groups at prearranged prices. In return, the groups refer their members to the preferred providers for health care services. Insurance companies are not PPO's, they are some of the groups that refer their members to the preferred providers. Some very popular PPO's are Beachstreet, PHCS and Southcare. Some Health Insurance companies such as Blue Cross Blue Shield and Humana have their own PPO Networks. Most other insurance companies, however, use one or more of the popular PPO Networks.

PPO Health Insurance Plans are comprehensive health plans in that they cover all aspects of your health care involving the services of physicians and other medical personnel, hospitals and other medical facilities. They cover Physician Office Visits, Wellness care, Surgery and Anesthesiology services, Vision Exams, X-rays and Lab, Hospital and related services, Pregnancy, Sick Baby care, Home Health Care, Skilled Nursing Care, Hospice Care, Transplants, and basically just about everything a Major Medical Insurance Plan is expected to cover.

Whereas HMO's operate on a pre-paid basis, and their members pay no fees at the time of service except for a minimal co-payment, PPO's operate on a fee-for-service basis. That is; the fee is due at the time the service is performed. The preferred providers in the PPO's, agree to offer their services to the insurance companies' members (policy holders) for a reduced rate, and in return the insurance companies send their policy holders to the PPO's providers. You and the insurance company jointly pay the bills. You pay in the form of co-pay, deductible and coinsurance. The insurance company pays the remainder of the bill. Because the preferred providers receive a large number of patients from the insurance companies, they are able to expand their services and offer some services such as Doctor's Visits at the same or similar Co-payments as the HMO's.

As mentioned earlier, in addition to Co-payments, PPO Health Insurance Plans have Deductibles and Coinsurance. Some PPO plans may even have a separate deductible for Prescription Drugs and Maternity services. The Out-Of-Pocket (OOP) maximum is the specific limit on the amount of covered expenses you pay each calendar year. Once your OOP maximum has been reached, you pay no more deductible or coinsurance for the remainder of the calendar year. Your OOP maximum is the sum of your deductible and your maximum coinsurance.

There is a family OOP maximum. Insurance companies are generous in that they will limit the family's OOP maximum to two or three individual OOP maximum for the calendar year. In other words, for a family of 5 covered members, when the OOP maximum for any 2 or 3 members of the family are met, then no one else in the family will incur a deductible or coinsurance. In many cases, this also holds true for separate deductibles that do not require coinsurance to meet the maximum OOP. For example; if the individual deductible for prescription drugs is $250 per covered member per calendar year, some insurance companies will consider the maximum OOP for prescription drugs to have been met when 2 or 3 covered members of the family have met their individual deductibles.

The following example illustrates how Co-pay, Deductible and Coinsurance may be used:

You have a PPO Health Insurance Plan with a $500 Deductible, and 20% Coinsurance (80/20 plan) to $5,000. Your maximum out-of-pocket is therefore $1,500. That is $500 + $1,000 (20% of $5,000).

You go to your doctor for your annual checkup, and the doctor charges you $25 (Co-pay) for the Office Visit. He performs a series of tests within the scope of a office visit, but decides that additional tests are needed. The additional tests are outside of the scope of a Office Visit, so you must satisfy your deductible before the insurance company begins to pay. The tests cost $1,000.

You are now responsible for the first $500 of the $1,000 bill. The next $500 is paid $100 by you (20%) and $400 (80%) by the insurance company. A few days later the tests results indicate that you need to have a surgery done. The surgery cost $20,000. Twenty percent (20%) of $20,000 is $4,000. But because you have already satisfied the deductible and you paid 20% of the previous bill for a total of $600, your total share of the outstanding $20,000 is only $900 - the amount required to reach your maximum out-of-pocket.

Unlike HMO's, PPO's require no Primary Care Physicians. You can go to any doctor or hospital in the PPO Network in your state without a referral from a Primary Care Physician. You may even go to doctors and facilities outside of the PPO Network, and your insurance company will still pay for services, though it may be at a lesser rate than the in-Network rates, and you may be charged an additional or separate deductible.

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Point Of Service (POS)

A Point Of Service (POS) Health Insurance Plan is a hybrid of the HMO and the PPO health insurance plans. In Network the POS behaves like an HMO, and out of Network it behaves like a PPO. This type of insurance is usually only available to individuals and their families as a company benefit of the company's group insurance. It is almost impossible to get this type of coverage as an individual or family insurance plan.

A POS works best in areas where some of a company's employees live and where there is no access to the group's HMO Network of physicians and facilities. The POS can therefore cover those employees and their families as an HMO in areas where the HMO's Network exists, or like a PPO or Basic Major Medical insurance in areas where there are no HMO Network physicians and/or facilities.

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Medical Savings Account (MSA)

A Medical Savings Account (MSA) is a tax-exempt savings account set up at a financial institute to save money to be used to pay for medical expenses. It must be used with a high-deductible health plan (HDHP) that meets government requirements. Two types of HDHP's can be used with the MSA, and the type you get is dependent upon the type offered by the insurance company you purchase your MSA and HDHP from: (i) There is the pure MSA which gives the patient the choice of any doctor or medical facility. (ii) There is the restricted MSA HMO Plan which requires the patient use the HMO's Network of physicians and facilities. Medical Savings Accounts (MSA's) are designed to save you (policy holder) money.

First, the premium for the high-deductible health plan (HDHP) is lower than that of a regular health insurance plan. Normally, the higher the deductible the lower the premium. Therefore money that would normally be spent on the premium for a lower deductible health insurance plan can now be saved in the Medical Savings Account (MSA) to be used to pay for those expenses that fall within the scope of your deductible. The HDHP is a comprehensive health plan, but it requires that a large deductible must be met before it begins to pay for your medical expenses. For an HDHP to work well for you, you should choose one with either a small coinsurance or no coinsurance at all.

Second, the money saved in a MSA can be as much as 65% of the deductible for you individually and as much as 75% of the deductible for your family. While its in the MSA, your money earns interest of between 2.5% and 4.5% depending on financial institution with which you set up your MSA. Here are some features of an MSA:

1.	Unused money is retained from year to year.
2.	Your money earns interest while its in the MSA
3.	Contributions (deposits), interest, and dividends grow tax free.
4.	Funds used for qualified medical expenses are tax deductible.
5.	You decide where to spend your MSA dollars.
6.	MSA dollars can be used to pay for all qualified medical expenses that are not covered by your health insurance plan.
7.	At age 65 the MSA functions like an Independent Retirement Account (IRA). You can withdraw money from it without penalty, paying only ordinary income tax. At retirement, can withdraw the accumulated MSA savings tax free to pay out-of-pocket medical expenses such as Long Term Care and other medical expenses not covered by Medicare.

The MSA laws are very specific about how money can be contributed to an MSA in a given year, how the MSA dollars can be used, and who qualifies for an MSA. The following table summarizes this information:

1. A self-employed person, or an employee in a business of less than 50 employees may setup an MSA.

2. An employee or the employer may make tax-exempt contributions (deposits) to the MSA during any given year, but not both

3. It is not necessary for all employees in a company to accept or setup an MSA. The employer may offer the MSA as an option and interested employees can take advantage of the offer.

4. You cannot have an MSA without a high-deductible health plan (HDHP)

5.
A qualified HDHP must be a comprehensive major medical health insurance policy. The law requires an annual deductible of between $1,700 and $2,500 for an individual, and between $3,350 and $5,050 for a family.

6.
Qualified medical expenses are generally preventative care, such as an annual check-up, any treatment for an illness or an injury, and normal medical expenses that are not covered by your health insurance plan, such as: dental care, glasses, hearing aids and birth control items.

7.
Any money used for non-medical or non-qualified expenses before age 65, will be subject to ordinary income tax and a 15% federal excise tax.

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Health Savings Account (HSA)

Health Savings Accounts (HSA's) are a result of the Medicare Reform bill of December, 2003. These accounts are tax-exempt savings accounts set up at a financial institute to save money to be used by eligible individuals with high-deductible health plans (HDHP's) to pay for qualified medical expenses not covered by their health insurance plans. HSA's are an expansion of the MSA's. The individual owns the account, and therefore, it remains with the individual if he/she changes jobs or health coverage. HSA's can accrue an unlimited amount of funds that remains in the account year after year if it is not used by the owner. Here are some specifics of the HSA:

1.	Any individual age under the age of 65 and covered by a high-deductible health plan (HDHP) may establish an HSA. The individual must not be covered by any other health plan that offers the same benefits as the HDHP. However, the individual and his/her dependents covered by the HSA may also be covered at the same time by "permitted insurance" products such as Disability, Dental, Vision, Long Term Care, etc. Note: "Permitted Insurance" also includes Workmen's Compensation, Liability insurance and Specific disease and illness insurance. Preventative services are not subject to the deductible.
2	Minimum deductible for the HDHP is $1,000 per individual, and $2,000 per family per calendar year.
3.	Maximum deductible may not exceed the maximum out-of-pocket.
4.	Maximum HDHP out-of-pocket for the individual is $5,000, and for a family $10,000 per calendar year.
5.	Annual contribution to the HSA for the individual is limited to the lesser of the HDHP deductible or up to a maximum of $2,600.
6.	For the family, annual contribution is limited to the lesser of the HDHP deductible or up to a maximum of $5,150.
7.	Contributions accumulate tax-free. Both the employee and the employer may contribute to the HSA. Employer contributions must be nondiscriminatory in order to be excluded from the employee's income.
8.	Individuals ages 55 to 65 can make additional pre-tax "catchup" contributions of $500 in year 2004, increasing to $1,000 in 2009. This amount is doubled if the account owner is married and both spouses are over 55.
9.	Health insurance may not be purchased from an HSA, except for COBRA continuation coverage or for health insurance purchased while an employee is receiving unemployment compensation. However, supplemental health insurance may be purchased with funds from an HSA.
10.	Funds accumulated in an HSA may not be used for other than approved medical services for the individual and his/her covered dependents. Use of the fund for any other purpose will incur a 10% tax penalty of the misused funds.

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Health Reimbursement Arrangements (HRA)

An Health Reimbursement Arrangement (HRA) is also a result of the Medicare Reform bill of 2003, and were designed to help employers control the cost of health insurance for their employees. These accounts enable any eligible individual with a high-deductible health plan (HDHP) to pay for qualified medical expenses not covered by their health insurance plans. Because HRA's are typically used with a HDHP, employers pay lower insurance premiums for their employees. Here are some advantages of an HRA:

1.	The employer decides how much to contribute to an HRA in any given year. HRA accounts must be entirely funded using employer's money, and cannot be funded by salary reduction.
2.	The employer decides what medical expenses are eligible to be paid for with the funds from the HRA. Funds can be used to reimburse premiums for other health coverage including COBRA premiums.
3.	HRA funds are tax deductible to the employer in the year they were contributed.
4.	Unspent funds can be carried forward to the following year.

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Hospital Indemnity Plan (HIP)

A Hospital Indemnity Plan (HIP) simply pays a daily in-hospital benefit of a fixed amount for a specific period of time. For example; the plan may pay $200 per day for up to 60 days for any single confinement in a hospital, and $400 per day for up to 15 days for confinement in the Intensive Care Unit (ICU) of a hospital. This type of insurance makes a good supplement for a Major Medical Insurance policy, and can be used to offset the cost some or all of the deductible and coinsurance of the Major Medical. Benefits are paid to you, and you may spend it in anyway you wish.