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Health insurance is similar to other insurance policies and tries to reduce the risk involved. In this scenario risk would mean risk of paying huge medical bills. Nowadays medical insurance also covers disability, long lasting medical care or sometimes custodial care needs. A health insurance policy may be offered by government organisations or even a private company. Generally these insurance policies are purchase by a large organisation for covering their employees or sometimes by individuals as a shield against sudden medical expenses.

When anyone purchases a health insurance policy, he/she enters into a legal agreement with the insurance company. These policies are renewed either on an annual or monthly basis. The premium to be paid for getting the right cover would depend on the age of the individual and the kind of coverage he/she has opted for.

Health insurance policies can be broadly categorised into two types: fee for service and managed care.

Fee for service are the most commonly used health insurance policies. The benefit of this policy is that it covers a wide list of doctors, covers basic care or medical expenses incurred depending on what the policy holder opts for. In order to enjoy these services, policy holders need to pay either an annual or half yearly or sometimes even quarterly premium. Policy holders can claim discount on the fee charged by a doctor and services offered by them. The most common coinsurance amount is 80/20. This denotes that 80% of medical expenses incurred is covered by the policy while the remaining 20% has to be born by the individual. However, there is a maximum limit set on the amount that can be spent by the individual in a year.

Managed care on the other hand is a pre planned policy that covers medical services like office visit, emergency care, laboratory work and therapies. However there is a list of approved doctors and hospitals provided by the insurance companies. Services obtained from these doctors or hospitals alone can be claimed by the policy holder. In case of specialists, a referral must be made to the doctor and even the specialist needs to be a member of the approved list. Managed care includes Health Maintenance Organisation, Point Of Service policies and preferred provider organisation policies. Of these HMO cover preventive care and the cost to be incurred by the policy holder is pretty low.

POS health insurance policies on the other hand are pretty much similar to HMO plans. The only difference between them being POS includes only selected doctors in its approved list. However, choice of doctor is still left to the discretion of policy holder. In case the policy holder wants to approach a doctor not covered in the approved list, he/she has to pay a huge amount when compared to those mentioned in the list.

The most common practise when it comes to payment of fee is that an upfront fee is paid and later claimed back either by the sponsoring employer or insurance company. All these policies involve a lot of manual work due to the reimbursement procedures included in them.

Neil Camp is the author of this article on Life Insurance.
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