Question

Explain the differences between traditional indemnity insurance and managed health care. Should insurance companies dictate reimbursement rates for various medical tests and procedures in an attempt to keep prices down?

Answer 1

Indemnity Health Insurance

An indemnity plan is also called a fee-for service plan. Indemnity plans give you freedom to choose your doctors, allowing you to receive treatment where and from whom you choose. The size of your deductible and the amount of your co-insurance will vary from insurance company to insurance company and within insurance companies according to the level of coverage you purchase. Indemnity plans are likely to require you to pay out-of-pocket for the services you receive. Some doctors require you to pay 100% of the fee up-front. You get the care and then are responsible for filing a claim with your insurance company, in order to be reimbursed. If the treatment you received was covered by the terms of your policy, then you will be reimbursed, after the insurance company accounts for your co-insurance and deductibles.

One risk of indemnity insurance is that your claim for reimbursement can be denied. Fighting with an insurance company over a claim is no fun. Because you paid up front, you have less leverage. If you have indemnity insurance, it is prudent to check with your insurance provider before you seek treatment, to clarify your level of coverage.

One kind of indemnity insurance is catastrophic health insurance. You may want to have insurance only to protect you from potential major costs of hospitalization or intensive treatments. This insurance does not cover basic health care or preventative care, but is vitally important if you have assets to protect. If you have assets, even if you have no other insurance, you should have catastrophic care insurance.

Managed Care Health Plans

Managed-care plans aim to offer comprehensive health care to its members through a network of health care providers. Members are offered financial incentives to use services offered within the network. In a managed care plan, the paperwork is generally taken care of by the health care provider instead of you, the policy holder. Your medical care is usually covered with only a low percentage co-insurance or co-payment, an amount that is set by the terms of your policy. A trade-off of managed care plans, compared to indemnity plans, is lower costs in exchange for limited services. Because the network of providers has, in most cases, agreed to provide the treatment at a pre-set price, your care will cost less you less than in an indemnity plan.

There are two main types of managed-care plans: HMOs (Health Maintenance Organizations) and PPOs, (Preferred Provider Organizations). Both HMOs and PPOs have networks of care providers. An HMO requires you to choose a primary care physician (PCP). All your treatments are based on a consultation with your PCP, who then refers you to network specialists as your care demands. A PPO does not require you to seek referrals from a PCP; you can see whomever you want. If you wish to see a physician outside the PPO network, your costs will likely be higher. The PPO may reimburse you for a percentage of your costs, but is not obliged to do so at the same rate that it covers your in-network care. Additionally, you will be responsible for filling out and submitting paperwork when seeing a non-network care provider.

A Point of Service (POS) plan is a hybrid of a PPO and HMO. In a POS you select a PCP who monitors your care and refers you to physicians inside and outside of the network. You will pay more for out of network care and will be responsible for submitting paperwork to have your insurance claims processed and to be reimbursed.

In a managed care plan, you do not face the risk of paying for a service and then being denied coverage. The risk you face is that the coverage can be denied up-front. With a managed care plan, your level of care is not determined only by your doctor, but by the plan's bureaucracy.

In short we can say that

No one kind of plan is right for everyone. You may wonder how you are supposed to choose the best plan for you and your family, with so many complex factors to weigh. Here are a few guidelines:

If you are you and in good health and expect to seek health care on a limited basis, choose a plan with a low premium. Be less concerned about the level of service, the size of the deductible, and the amount of your co-payments. The purpose of insurance for you, if you are young and in good health, is to protect yourself from potentially high costs in case of emergency, accident, or hospitalization. You may want to consider catastrophic care insurance.

If you know that you are going to need regular care, to monitor ongoing medical conditions and to cover monthly prescriptions, you should consider paying a higher premium in order to get the coverage with smaller co-payments, co-insurance, and deductibles.

If you have a need for more specialized care, the flexibility of indemnity care may benefit you.

If you move frequently, it makes more sense to look at indemnity insurance, so you can don’t need to sign-up with a new provider each time you move. Indemnity insurance also prevents you being turned down for insurance coverage, which could happen if you need new coverage and you developed some condition which would make finding new insurance difficult, expensive, or impossible.

A managed care patient must overcome the managed care plan's built-in incentive to under-test and under-treat. A fee-for-service patient must resist the physician's incentive to over-test and over-treat.

Part b

Yes in my point of view the insurance companies should dictate reimbursement rates for various medical tests and procedures in an attempt to keep prices down