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Individual Health Insurance

The Basics

Shopping for an individual health insurance plan can be a daunting task for those unfamiliar with the process. Personal circumstances, plan types, different companies, cost, and coverage are just a few options that the individual health insurance shopper needs to research and evaluate. Finding the right combination of affordability and coverage that meets your unique needs can be difficult. Using this comprehensive guide to individual health insurance can help make your purchase easier and more convenient.

The first step to purchasing individual health insurance is to evaluate your needs and understand your available options. An individual healthcare plan, sometimes called family health insurance plans, can vary widely from company to company. Comparison shopping is difficult because premiums can vary by as much as 50 percent for the same person for a similar product. Even within the same company, different plans can have very different costs and benefits, making shopping for health insurance a potentially confusing and frustrating job. Finding a plan with the right amount of coverage and an affordable deductible can be challenging. In general, with better coverage comes a higher deductible, which is the amount you are responsible for paying before insurance covers your expenses. A lower deductible mean that you will pay less in premiums and up front, but will likely have less comprehensive health coverage.

Types of Individual Plans

Individual insurance plans typically fall into two categories: indemnity health plans or managed care health plans. A managed care plan typically makes use of provider networks to allow patients access to healthcare. With a managed care plan, you will be limited to a network of healthcare providers with an emphasis on efficient and cost-effective care. Out-of-pocket costs are usually lower with a managed care plan, as is the amount of paperwork required for a provider visit. An indemnity health plan is a more traditional healthcare option in which the consumer pays a set deductible and the insurance company pays the balance. With an indemnity plan, you typically have access to a broader selection of providers but you only have coverage for certain services. Many traditional healthcare plans, such as HMOs and PPOs, are managed care plans.

Regardless of which health insurance company you choose or the state in which you are shopping, most healthcare plans fall into one of four categories based on price, physician preferences, and individual healthcare needs. Your unique situation will determine which type of plan is best.

  • PPO Plans - A Preferred Provider Organization (PPO) is the most common type of individual health insurance plan offered by insurance companies. You select your primary care physician or hospital from a list of choices offered by the insurance company. These providers are the company’s “network,” or a list of preferred providers that agree to accept your insurance as full payment, minus any deductibles or copayments. You will have to cover a higher portion of the cost if you visit a physician outside this network.
  • HMO Plans - A Health Maintenance Organization (HMO) requires that you get permission from your primary care physician to see another doctor or specialist. An HMO is typically less expensive than a traditional healthcare plan, which means that your personal physician will be less likely to refer you to a specialist unless it is absolutely necessary. You will likely pay in full for any unauthorized provider visits. HMOs are popular because they normally have a very low copay, often as low as $10 or $20 per visit.
  • Fee for Service Plans - A fee for service, or current indemnity plan, pays either you or the hospital in the event of illness or injury. Payment is determined by a fee schedule, which determines how much you will be paid for each day in the hospital and what you will be reimbursed for health care expenses. An indemnity plan is one of the least expensive individual health insurance options, but as such, provides the least comprehensive coverage.
  • Point of Service Plans - A point of service (POS) plan offers members more freedom to visit out-of-network providers, but at a higher cost. With a POS plan, you will receive the highest level of benefits when using in-network providers. You have the option of self-referring to visit an out-of-network provider, but your benefits will be lower.

State to State Differences

Additionally, insurance regulation can vary from state to state, which makes comparisons more difficult for the consumer. With recent healthcare legislation, states have enacted various market reforms, including state insurance exchanges. President Obama’s healthcare legislation requires states to set up healthcare insurance exchanges by 2014. These exchanges, according to the Kaiser Foundation, will create a more organized and competitive market for purchasing health insurance. They will also provide consumers with more information to better understand their options. Exchanges will primarily serve those in the market for individual health insurance.

    As of May 2012, fifteen states have established health insurance exchanges. Those states include:
  • California, Colorado, Connecticut, District of Columbia, Hawaii, Maryland, Massachusetts, Nevada, New York, Oregon, Rhode Island, Utah, Vermont, Washington, and West Virginia.

Nineteen other states are currently in the planning process, while the seventeen remaining states have had no significant activity towards planning an exchange or have decided not to create one. Much of this inaction is due to the pending Supreme Court case regarding the health insurance law, so expect to see more news on exchanges coming in the near future.

For further information on different healthcare plans, state regulations, changes under healthcare legislation, and useful tools for finding health insurance, visit the Department of Health and Human Services’ Healthcare Finder at finder.healthcare.gov.