HMO Vs. Private Insurance

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As the cost of health care soars, so does the cost of health insurance. There's a lot of discussion on the right way to control the costs and the potential changes that are necessary to do this. However, there as yet is no solution. You have to find a way to keep your budget balanced and still have adequate coverage. To add to the dilemma, there are a number of types of health care policies on the market from which to choose. One method of selection is to understand each type of coverage and its advantages and disadvantages.

History of HMOs

  • In 1910, the Western Clinic offered its services to those in the lumber industry for a nominal amount each month. But the Ross-Loos Medical Group formed the first official HMO in 1929 and provided service for Los Angeles County employees. In 1938, Kaiser and Garfield created a plan for the workers at the Grand Coulee Dam. The Kaiser plans continued to grow until the 1970s, when it was one of the largest HMOs in existence. As federal tax laws changed to allow the deduction of the premium by employers, and health insurance cost rose dramatically, Americans embraced HMOs.

HMOs

  • An HMO is more than just prepaid medical services. It is a managed care plan. In each plan, you have specific health professionals from which to select. The plan payment plus a small co-payment is the cost to the insured. The doctors and hospitals receive reimbursement from these funds. Each insured has to select a primary care physician that acts as a gatekeeper for their medical expenses. The plan doesn't cover a specialist unless the primary care physician recommends it. There is control over the type of treatment used on each payment and strict attention paid to costs. These are managed care programs

Traditional Private Insurance Plan

  • Traditional insurance has been in existence for much longer than the HMO. In these plans, called fee for service, the insured gets to select whatever doctor or hospital they want and can see specialists. Unless it's disallowed by the plan doctrine, the insured can seek most any type of medical care. Each year you meet a predetermined deductible payment and then pay co-insurance until you reach a maximum amount. After that, the insurance company pays the whole bill. Each plan covers reasonable and customary medical costs for the individual. Of course, there are limitations. The plans don't pay for experimental and many alternative medical treatments. Unnecessary elective treatments, such as face-lifts, aren't covered either. It is, however, far more liberal than managed care systems.

Negatives of HMOs

  • You hear many different jokes on television about bad HMOs, but if you're in one, it's no joke. The quality of care can be excellent, but one of the American Medical Association's arguments against HMOs is that since prices are set, they attract lower-quality doctors and services. If you firmly believe that the services of a specialist are necessary, but your primary care physician disagrees, you'll pay for it out of your pocket. If you've already established a relationship with a physician, but they aren't on the list of providers, you must switch doctors or you don't have coverage.

Advantages of HMOs

  • The biggest advantage is their price. The managed care system has a lower cost. This is partly because HMOs pay lowered costs for treatment and limit their paperwork by using only network doctors. It's also because of the strict attention paid to the treatments for which they pay. Another advantage is that you don't need to meet a deductible each year, but rather you pay small co-payments for each service rendered.

Advantages and Disadvantages of Private Insurance

  • There's a price for freedom of choice, and you'll see the difference in the premiums you pay each month. Private insurance simply costs more. It costs more in premiums and also, for those who have limited health issues, costs more in medical care. Often healthy people never meet their deductible and therefore never reap the benefits of their insurance. To some, the freedom to select their own doctor and have more say in their medical care is worth the extra money each month.

Compromise

  • PPO and POS plans offer some of the same features as both traditional and HMO plans, but at lower cost than the traditional plan. The premiums are in the mid range between the two and you have more freedom than you do with the HMO. You also pay for that with higher co-pays and co-insurance limits.

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