Types of medical insurance

Traditional indemnity or fee-for-service

Early hospital and medical plans offered by insurance companies paid either a fixed amount for specific diseases or medical procedures (schedule benefits) or a percentage of the provider's fee. The relationship between the patient and the medical provider was not changed. The patient received medical care and was responsible for paying the provider. If the service was covered by the policy, the insurance company was responsible for reimbursing or indemnifying the patient based on the provisions of the insurance contract ("reimbursement benefits"). Health insurance plans that are not based on a network of contracted providers, or that base payments on a percentage of provider charges, are still described as indemnity or fee-for-service plans.

Blue Cross Blue Shield Association

The Blue Cross and Blue Shield Association (BCBSA) is a federation of 38 separate health insurance organizations and companies in the United States. Combined, they directly or indirectly provide health insurance to over 100 million Americans. BCBSA insurance companies are franchisees, independent of the association (and traditionally each other), offering insurance plans within defined regions under one or both of the association's brands. Blue Cross Blue Shield insurers offer some form of health insurance coverage in every U.S. state. They also act as administrators of Medicare in many states or regions of the U.S., and provide coverage to state government employees as well as to the federal government employees under a nationwide option of the Federal Employees Health Benefit Plan.

Health Maintenance Organizations

A health maintenance organization (HMO) is a type of managed care organization (MCO) that provides a form of health care coverage that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. The Health Maintenance Organization Act of 1973 required employers with 25 or more employees to offer federally certified HMO options. Unlike traditionalindemnity insurance, an HMO covers only care rendered by those doctors and other professionals who have agreed to treat patients in accordance with the HMO's guidelines and restrictions in exchange for a steady stream of customers. Benefits are provided through a network of providers. Providers may be employees of the HMO ("staff model"), employees of a provider group that has contracted with the HMO ("group model"), or members of an independent practice association ("IPA model"). HMOs may also use a combination of these approaches ("network model").

Managed care

The term managed care is used to describe a variety of techniques intended to reduce the cost of health benefits and improve the quality of care. It is also used to describe organizations that use these techniques ("managed care organization").Many of these techniques were pioneered by HMOs, but they are now used in a wide variety of private health insurance programs. Through the 1990s, managed care grew from about 25% US employees with employer-sponsored coverage to the vast majority.

Rise of managed care in the US

Year	Conventional plans	HMOs	PPOs	POS plans	HDHP/SOs
1998	14%	27%	35%	24%	~
1999	10%	28%	39%	24%	~
2000	8%	29%	42%	21%	~
2001	7%	24%	46%	23%	~
2002	4%	27%	52%	18%	~
2003	5%	24%	54%	17%	~
2004	5%	25%	55%	15%	~
2005	3%	21%	61%	15%	~
2006	3%	20%	60%	13%	4%
2007	3%	21%	57%	15%	5%
2008	2%	20%	58%	12%	8%

Network-based managed care

Many managed care programs are based on a panel or network of contracted health care providers. Such programs typically include:

• A set of selected providers that furnish a comprehensive array of health care services to enrollees;
• Explicit standards for selecting providers;
• Formal utilization review and quality improvement programs;
• An emphasis on preventive care; and
• Financial incentives to encourage enrollees to use care efficiently.

Provider networks can be used to reduce costs by negotiating favorable fees from providers, selecting cost effective providers, and creating financial incentives for providers to practice more efficiently.A survey issued in 2009 by America's Health Insurance Plans found that patients going to out-of-network providers are sometimes charged extremely high fees.                                             

Network-based plans may be either closed or open. With a closed network, enrollees' expenses are generally only covered when they go to network providers. Only limited services are covered outside the network—typically only emergency and out-of-area care. Most traditional HMOs were closed network plans. Open network plans provide some coverage when an enrollee uses non-network provider, generally at a lower benefit level to encourage the use of network providers. Most preferred provider organization plans are open-network (those that are not are often described as exclusive provider organizations, or EPOs), as are point of service (POS) plans.

The terms "open panel" and "closed panel" are sometimes used to describe which health care providers in a community have the opportunity to participate in a plan. In a "closed panel" HMO, the network providers are either HMO employees (staff model) or members of large group practices with which the HMO has a contract. In an "open panel" plan the HMO or PPO contracts with independent practitioners, opening participation in the network to any provider in the community that meets the plan's credential requirements and is willing to accept the terms of the plan's contract.

Other managed care techniques

Other managed care techniques include such elements as disease management, case management, wellness incentives, patient education, utilization management and utilization review. These techniques can be applied to both network-based benefit programs and benefit programs that are not based on a provider network. The use of managed care techniques without a provider network is sometimes described as "managed indemnity."

Blurring lines

Over time, the operations of many Blue Cross and Blue Shield operations have become more similar to those of commercial health insurance companies. However, some Blue Cross and Blue Shield plans continue to serve as insurers of last resort. Similarly, the benefits offered by Blues plans, commercial insurers, and HMOs are converging in many respects due to market pressures. One example is the convergence of preferred provider organization (PPO) plans offered by Blues and commercial insurers and the point of service plans offered by HMOs. Historically, commercial insurers, Blue Cross and Blue Shield plans, and HMOs might be subject to different regulatory oversight in a state (e.g., the Department of Insurance for insurance companies, versus the Department of Health for HMOs). Today, it is common for commercial insurance companies to have HMOs as subsidiaries, and for HMOs to have insurers as subsidiaries (the state license for an HMO is typically different from that for an insurance company). At one time the distinctions between traditional indemnity insurance, HMOs and PPOs were very clear; today, it can be difficult to distinguish between the products offered by the various types of organization operating in the market.

The blurring of distinctions between the different types of health care coverage can be seen in the history of the industry's trade associations. The two primary HMO trade associations were the Group Health Association of America and the American Managed Care and Review Association. After merging, they were known as American Association of Health Plans (AAHP). The primary trade association for commercial health insurers was the Health Insurance Association of America (HIAA). These two have now merged, and are known as America’s Health Insurance Plans(AHIP).