Health Insurance 101
Step 1: Understand the major types of health plans available.
The most common types of medical insurance plans are:
- PPO—Preferred provider organization
- HMO—Health maintenance organization
- POS—Point-of-service plan
- CDHP—Consumer-directed health plan
PPOs offer the most freedom. They have arrangements with medical providers who have agreed to accept lower fees. As a result, you pay less for in-network providers, but you may also use providers outside the network. No referrals or primary care practitioners (PCPs) are required.
HMOs are the most restrictive type of managed care. You choose a primary care doctor, and specialist services are covered only if referred by your primary care doctor. HMOs usually only cover services provided by doctors in their network; if you go outside the HMO for care, you will probably pay the bill.
POS plans are a cross between an HMO and a PPO, allowing more flexibility with providers than an HMO. With a POS plan, primary care doctors usually refer patients to other providers in the network. You can also self-refer to providers outside the plan and receive limited coverage.
CDHPs—consumer-directed health plans—are the newest type of health plan product. They are designed to:
- Help hold down healthcare premiums
- Give consumers more control over how their healthcare dollars are spent
- Feature a low-cost, high-deductible PPO plan plus a healthcare spending account
You use the spending account funds to pay for services while meeting your health plan deductible or for health-related services not covered by your plan, such as dental or alternative care. There’s normally a financial incentive for you to spend your account dollars wisely, such as allowing your account balance to carry over from year to year. Learn more about these plans in Consumer-Directed Health Plans 101.