Personal Finance Essentials
The Four Types of Insurance Providers
Health Insurance > The Four Types of Insurance Providers
Once you understand the types of coverage, you’ll need to understand who provides it.
There are four main types of organizations that offer health insurance, and each works quite differently.
Blue Cross/Blue Shield
The Blues – as they’re commonly known – contract directly with doctors and hospitals, who agree to charge certain negotiated fees. If you use a participating provider, that provider accepts the Blues’ payment as payment in full. If you use a non-participating provider, fees will be higher, and you’ll be required to pay the difference out of pocket.
Private Insurance Companies
Private insurers typically reimburse doctors and hospitals on a non-participating basis, which means costs tend to run higher. As a result, these policies often include more exclusions and place internal caps on what they’ll pay for specific procedures. If your actual costs exceed those caps, you pay the rest.
Preferred Provider Organizations
A PPO works similarly to Blue Cross/Blue Shield. It maintains agreements with a network of doctors and hospitals who charge predetermined, negotiated fees. When you stay in-network, the PPO typically covers 100% of most charges. There’s a process to follow, though: in most cases, you’re required to first visit a Primary Care Physician – an internist or family practitioner – who then refers you to a specialist if needed. If you go out of network or skip the referral process, the policy won’t cover the full bill. Most PPOs also charge a minimum payment for office visits and a separate deductible for emergency room visits.
Health Maintenance Organizations
HMOs work differently from the others. Rather than paying for care after the fact, you prepay the HMO. When you or a covered family member needs medical attention, you receive services at little or no cost – typically just a small fee per office visit.
This model gives HMOs a built-in incentive to keep members healthy. As a result, many HMOs emphasize preventive care, and physical examinations are often covered at no charge – something other health insurance policies frequently don’t include.
That said, there are real trade-offs. Because HMOs have a financial incentive to minimize services rendered, some critics argue that the quality of care can suffer. You may not be able to choose your own doctor, and you might see a different provider each visit. HMOs also typically require patients to see a general practitioner first and receive a referral before seeing a specialist. This gatekeeping process is designed to control costs, but it can create delays and limit access to the care you need.