Answers to Frequently Asked California Health Insurance Questions

Table of Contents

  1. What is COBRA?
  2. Should I COBRA my coverage from my previous employer, or buy a personal policy?
  3. What is The Health Insurance Portability Accountability Act of 1996  
  4. What is a HMO (Health Maintenance Organization)?
  5. What is a PPO (Preferred Provider Organization)?
  6. What is a Traditional Indemnity Plan?
  7. How do deductible plans work? (Individual and Family Plans)
  8. How are pre-existing conditions covered? (Individual and Family Plans)
  9. What if I am declined coverage? (Individual and Family Plans)
  10. can I see any doctor I want? (Individual and Family Plans)
  11. How long does it take to get coverage approved? (Individual and Family Plans)
  12. What is California Major Risk Medical Insurance Program?
  13. Are my premium payments tax deductible? (Individual and Family Plans)
  14. What is a Health Savings Account (Individual and Family Plans)

What is COBRA?



What is the Continuation Health Law?
Who is entitled to benefits?
Plan Coverage
Beneficiary Coverage
Qualifying Events
Chart: Periods of Coverage
Your Rights: Notice and Election Procedures
How COBRA coverage works
Covered Benefits
Duration of Coverage
Paying for COBRA coverage
Claims Procedures
Role of the Federal Government


Health insurance programs allow workers and their families to take care of essential medical needs. These programs can be one of the most important benefits provided by your employer. There was a time when group health coverage was available only to full-time workers and their families. That changed in 1985 with the passage of health benefit provisions in the Consolidated Omnibus Budget Reconciliation Act (COBRA). Now, terminated employees or those who lose coverage because of reduced work hours may be able to buy group coverage for themselves and their families for limited periods of time. If you are entitled to COBRA benefits, your health plan must give you a notice stating your right to choose to continue benefits provided by the plan. You have 60 days to accept coverage or lose all rights to benefits. Once COBRA coverage is chosen, you are required to pay for the coverage. This booklet is designed to:

  •  Outline the rules that apply to health plans for employees in the private sector
  •  Provide a general explanation of COBRA requirements
  •  Spotlight your rights to benefits under this law


Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act (COBRA){1} health benefit provisions in 1985. The law amends the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise would be terminated.

COBRA contains provisions giving certain former employees, retirees, spouses and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available in specific instances. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer formerly paid a part of the premium. It is ordinarily less expensive, though, than individual health coverage.

The law generally covers group health plans maintained by employers with 20 or more employees in the prior year. It applies to plans in the private sector and those sponsored by state and local governments.{2} The law does not, however, apply to plans sponsored by the Federal government and certain church- related organizations.

Group health plans sponsored by private sector employers generally are welfare benefit plans governed by ERISA and subject to its requirements for reporting and disclosure, fiduciary standards and enforcement. ERISA neither establishes minimum standards or benefit eligibility for welfare plans nor mandates the type or level of benefits offered to plan participants. It does, though, require that these plans have rules outlining how workers become entitled to benefits.

For COBRA purposes, a group health plan ordinarily is defined as a plan that provides medical benefits for the employer's own employees and their dependents through insurance or otherwise (such as a trust, health maintenance organization, self-funded pay-as-you-go basis, reimbursement or combination of these). Medical benefits provided under the terms of the plan and available to COBRA beneficiaries may include:

  •  Inpatient and outpatient hospital care
  •  Physician care
  •  Surgery and other major medical benefits
  •  Prescription drugs
  •  Any other medical benefits, such as dental and vision care

Life insurance, however, is not a benefit that must be offered to individuals for purposes of health continuation coverage.

{1} The original continuation health provisions were contained in Title X of COBRA, which was signed into law (Public Law 99-272) on April 7, 1986.

{2} Provisions of COBRA covering state and local government plans are administered by the U.S. Public Health Service within the Department of Health and Human Services.


There are three elements to qualifying for COBRA benefits. COBRA establishes specific criteria for plans, beneficiaries and events which initiate the coverage.


Group health plans for employers with 20 or more employees on at least 50 percent of the working days in the previous calendar year are subject to COBRA. "Employees" include full-time and part-time workers, agents, independent contractors and directors, and certain self-employed individuals eligible to participate in a group health plan.

A qualified beneficiary generally is any individual covered by a group health plan on the day before a qualifying event. A qualified beneficiary may be an employee, the employee's spouse and dependent children, and in certain cases, a retired employee, the retired employee's spouse and dependent children.


"Qualifying events" are certain types of events that would cause, except for COBRA continuation coverage, an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the required amount of time that a plan must offer the health coverage to them under COBRA. A plan, at its discretion, may provide longer periods of continuation coverage.

The types of qualifying events for employees are:

  •  Voluntary or involuntary termination of employment for reasons other than "gross misconduct"
  •  Reduction in the number of hours of employment

The types of qualifying events for spouses are:

  •  Termination of the covered employee's employment for any reason other than "gross misconduct"
  •  Reduction in the hours worked by the covered employee
  •  Covered employee's becoming entitled to Medicare
  •  Divorce or legal separation of the covered employee
  •  Death of the covered employee

The types of qualifying events for dependent children are:

  •  Termination of covered employee's employment for any reason other than "gross misconduct"
  •  Reduction in the hours worked by the covered employee
  •  Loss of "dependent child" status under the plan rules
  •  Covered employee's becoming entitled to Medicare
  •  Divorce or legal separation of the covered employee
  •  Death of the covered employee


Qualifying Events Beneficiary Coverage
Termination Employee 18 month{4}
Reduced hours Spouse

Dependent child

18 month{4}
Employee entitled to Medicare Spouse

Dependent child

36 months
Divorce or legal separation Spouse

Dependent child

36 months
Death of covered employee Spouse

Dependent child

36 months
Loss of "dependent" status Spouse

Dependent child

36 months


{3} The Omnibus Budget Reconciliation Act of 1986 contained amendments to the Internal Revenue Code and ERISA affecting retirees and family members who receive post-retirement health coverage from employers involved in bankruptcy proceedings begun on or after July 1, 1986. This booklet does not address that group.

{4} In the case of individuals who qualify for Social Security disability benefits, special rules apply to extend coverage an additional 11 months.



COBRA outlines procedures for employees and family members to elect continuation coverage and for employers and plans to notify beneficiaries. The qualifying events contained in the law create rights and obligations for employers, plan administrators and qualified beneficiaries.

Qualified beneficiaries have the right to elect to continue coverage that is identical to the coverage provided under the plan. Employers and plan administrators have an obligation to determine the specific rights of beneficiaries with respect to election, notification and type of coverage options.


General Notices

An initial general notice must be furnished to covered employees, their spouses and newly hired employees informing them of their rights under COBRA and describing provisions of the law. COBRA information also is required to be contained in the summary plan description (SPD) which participants receive. ERISA requires that SPDs containing certain plan information and summaries of material changes in plan requirements be furnished to participants in modified and updated SPDs. Plan administrators must automatically furnish the SPD booklet 90 days after a person becomes a participant or beneficiary or within 120 days after the plan is subject to the reporting and disclosure provisions of the law.

Specific Notices

Specific notice requirements are triggered for employers, qualified beneficiaries and plan administrators when a qualifying event occurs. Employers must notify plan administrators within 30 days of an employee's death, termination, reduced hours of employment, entitlement to Medicare or a bankruptcy.

Multi employer plans may provide for a longer period of time. The employee, retiree or family member should notify the plan administrator within 60 days of events consisting of divorce or legal separation or a child's ceasing to be covered as a dependent under plan rules.

Disabled beneficiaries must notify plan administrators of Social Security disability determinations. A notice must be provided within 60 days of a disability determination and prior to expiration of the 18-month period of COBRA coverage. These beneficiaries also must notify the plan administrator within 30 days of a final determination that they are no longer disabled.

Plan administrators, upon notification of a qualifying event, must automatically provide a notice to employees and family members of their election rights. The notice must be provided in person or by first class mail within 14 days of receiving information that a qualifying event has occurred.

There are two special exceptions to the notice requirements for multi employer plans. First, the time frame for providing notices may be extended beyond the 14- and 30-day requirements if allowed by plan rules. Second, employers are relieved of the obligation to notify plan administrators when employees terminate or reduce their work hours. Plan administrators are responsible for determining whether these qualifying events have occurred.


The election period is the time frame during which each qualified beneficiary may choose whether to continue health care coverage under an employer's group health plan. Qualified beneficiaries have a 60-day period to elect whether to continue coverage. This period is measured from the later of the coverage loss date or the date the notice to elect COBRA coverage is sent. COBRA coverage is retroactive if elected and paid for by the qualified beneficiary.

A covered employee or the covered employee's spouse may elect COBRA coverage on behalf of any other qualified beneficiary. Each qualified beneficiary, however, may independently elect COBRA coverage. A parent or legal guardian may elect on behalf of a minor child.

A waiver of coverage may be revoked by or on behalf of a qualified beneficiary prior to the end of the election period. A beneficiary may then reinstate coverage. Then, the plan need only provide continuation coverage beginning on the date the waiver is revoked.


Example 1:

John Q. participates in the group health plan maintained by the ABC Co. John is fired reason other than gross misconduct and his health coverage is terminated. John may elect and pay for a maximum of 18 months of coverage by the employer's group health plan at the group rate. (See Paying for COBRA Coverage.)

Example 2:

Day laborer David P. has health coverage through his wife's plan sponsored by the XYZ Co. David loses his health coverage when he and his wife become divorced. David may purchase health coverage with the plan of his former wife's employer. Since in this case divorce is the qualifying event under COBRA, David is entitled to a maximum of 36 months of COBRA coverage.

Example 3:

Acme, Inc. is a small business which maintained an insured group health plan for its 10 employees in 1987 and 1988. Mary H., a secretary with six years of service, leaves in June 1988 to take a position with a competing firm which has no health plan. She is not entitled to COBRA coverage with the plan of care West, Inc. since the firm had fewer than 20 employees in 1987 and is not subject to COBRA requirements.

Example 4:

Jane W., a stock broker, left a brokerage firm in May 2004 to take a position with a chemical company. She was five months pregnant at the time. The health plan of the chemical company has a pre-existing condition clause for maternity benefits. Even though Jane signs up for the new employer's plan, she has the right to elect and receive coverage under the old plan for COBRA purposes because the new plan limits benefits for preexisting conditions.


Qualified beneficiaries must be offered benefits identical to those received immediately before qualifying for continuation coverage.

For example, a beneficiary may have had medical, hospitalization, dental, vision and prescription benefits under single or multiple plans maintained by the employer. Assuming a qualified beneficiary had been covered by three separate health plans of his former employer on the day preceding the qualifying event, that individual has the right to elect to continue coverage in any of the three health plans.

If a plan provides both core and non-core benefits, individuals may generally elect either the entire package or just core benefits. Individuals do not have to be given the option to elect just the non-core benefits unless those were the only benefits carried under that particular plan before a qualifying event.

Non-core benefits are vision and dental services, except where they are mandated by law in which case they become core benefits. Core benefits include all other benefits received by a beneficiary immediately before qualifying for COBRA coverage. Beneficiaries may change coverage during periods of open enrollment by the plan.


COBRA establishes required periods of coverage for continuation health benefits. A plan, however, may provide longer periods of coverage beyond those required by COBRA. COBRA beneficiaries generally are eligible to pay for group coverage during a maximum of 18 months for qualifying events due to employment termination or reduction of hours of work. Certain qualifying events, or a second qualifying event during the initial period of coverage, may permit a beneficiary to receive a maximum of 36 months of coverage.

Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and can end when:

  •  The last day of maximum coverage is reached
  •  Premiums are not paid on a timely basis
  •  The employer ceases to maintain any group health plan
  •  Coverage is obtained with another employer group health plan that does not contain any exclusion or limitation with  respect to any pre-existing condition of such beneficiary
  •  A beneficiary is entitled to Medicare benefits

Special rules for disabled individuals may extend the maximum periods of coverage. If a qualified beneficiary is determined under Title II or XVI of the Social Security Act to have been disabled at the time of a termination of employment or reduction in hours of employment and the qualified beneficiary properly notifies the plan administrator of the disability determination, the 18-month period is expanded to 29 months.

Although COBRA specifies certain maximum required periods of time that continued health coverage must be offered to qualified beneficiaries, COBRA does not prohibit plans from offering continuation health coverage that goes beyond the COBRA periods.

Some plans allow beneficiaries to convert group health coverage to an individual policy. In this case, you must be given the option to enroll in a conversion health plan. You usually must enroll in the plan within 180 days before your COBRA coverage ends. The premium is generally not at a group rate. The conversion option, however, is not available if you end COBRA coverage before reaching the maximum period of entitlement or it is unavailable under the plan.


Beneficiaries may be required to pay the entire premium for coverage. It cannot exceed 102 percent of the cost to the plan for similarly situated individuals who have not incurred a qualifying event. Premiums reflect the total cost of group health coverage, including both the portion paid by employees and any portion paid by the employer before the qualifying event, plus two percent for administrative costs.

For disabled beneficiaries, the premium may be increased after 18 months to 150 percent of the plan's total cost of coverage for the last 11 months of continuation coverage.

Premiums due may be increased if the costs to the plan increase but generally must be fixed in advance of each 12-month premium cycle. The plan must allow you to elect to pay premiums on a monthly basis if requested by you.

The initial premium payment must be made within 45 days after the date of the COBRA election by the qualified beneficiary. Payment must cover the period of coverage from the date of COBRA election retroactive to the date of the qualifying event. Premiums for successive periods of coverage are due on the date stated in the plan with a minimum 30-day grace period for payments. No payment, however, need be made earlier than 45 days after the date of the election.

The due date may not be prior to the first day of the period of coverage. For example, the due date for the month of January could not be prior to January 1 and coverage for January could not be canceled if payment is made by January 31.

Premiums for the rest of the COBRA period must be made within 30 days of the due date for each such premium or such longer period as provided by the plan.

COBRA beneficiaries remain subject to the rules of the plan and therefore must satisfy all costs related to deductibles, catastrophic and other benefit limits.


Health plan rules must explain how to obtain benefits and must include written procedures for processing claims. Claims procedures are to be included in the SPD booklet.

You should submit a written claim for benefits to whomever is designated to operate the health plan (employer, plan administrator, etc.). If the claim is denied, notice of denial must be in writing and furnished generally within 90 days after the claim is filed. The notice should state the reasons for the denial. any additional information needed to support the claim and procedures for appealing the denial.

You have 60 days to appeal a denial and must receive a decision on the appeal within 60 days after that unless the plan:

•provides for a special hearing, or •the decision must be made by a group which meets only on a periodic basis. Contact the plan administrator for more information on filing a claim for benefits. Complete plan rules are available from employers or benefits offices. There can be charges up to 25 cents a page for copies of plan rules.


Continuation coverage laws are administered by several agencies. The Departments of Labor and the Treasury have jurisdiction over private sector health plans. The United States Public Health Service administers the continuation coverage law as it affects public sector health plans.

The Labor Department's interpretative and regulatory responsibility is limited to the disclosure and notification requirements. If you need further information on your election or notification rights with a private sector plan, write to:

U.S. Department of Labor
Pension and Welfare Benefits Administration
Division of Technical Assistance and Inquiries
200 Constitution Ave., N.W.
(Room N-5658)
Washington, D.C. 20210

The Internal Revenue Service, which is in the Department of the Treasury, is responsible for publishing regulations on COBRA provisions relating to eligibility and premiums. Both Labor and Treasury share jurisdiction for enforcement.

The U.S. Public Health Service, located in the Department of Health and Human Services, has published Title XXII of the Public Health Service Act entitled "Requirements for Certain Group Health Plans for Certain State and Local Employees." Information about COBRA provisions concerning public sector employees is available from the:

U.S. Public Health Service
Office of the Assistant Secretary for Health
Grants Policy Branch (COBRA)
5600 Fishers Lane
(Room 17A-45)
Rockville, Maryland 20857

Federal employees are covered by a law similar to COBRA. Those employees should contact the personnel office serving their agency for more information on temporary extensions of health benefits.


Rising medical costs have transformed health benefits from a privilege to a household necessity for most Americans. The COBRA law creates an opportunity for persons to retain this important benefit.

Workers need to be aware of changes in health care laws to preserve their benefit rights. A good starting point is reading your plan booklet. Most of the specific rules on COBRA benefits can be found there or with the person who manages your plan.

Be sure to periodically contact the health plan to find out about any changes in the type or level of benefits offered by the plan.


Re-printed from : THE ALEXANDER LAW FIRM - alexanderlaw dot com

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Should I COBRA my coverage from my previous employer, or buy a personal policy?

The answer to this question depends on several things, but the two main issues are eligibility and duration. 

EligibilityIndividual (personal) plans require that you qualify by health.  If you have pre-existing conditions that would keep you from qualifying for an individual plan you may want to consider COBRA.  The health qualifications vary from insurance company to insurance company, and if you are uncertain if you would qualify, be certain that you are approved for new coverage before you decline your COBRA option.

Duration:  If your plan is to only need coverage for a few months until new coverage would be available, such as a waiting period from a new employer or laid off, you may be better off to COBRA your current coverage.  Individual plans can take up to 60 days to be approved. 

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What is the Health Insurance Portability Availability and Affordability Act of 1996?

Often referred to as HIPAA, allows people to change from one group health plan to another without being imposed a pre-existing condition exclusion on the new group plan.  
See this link for a detailed description of this act 

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What is a HMO (Health Maintenance Organization)?

If you want to know more about HMOs or want to know why you might choose an HMO for your health insurance needs, this page may provide you with some of the answers.

• What is an HMO?
• The basic HMO models
• What is a federally qualified HMO?
• How to access care through an HMO
• Co-payments, your share of the bill
• How claims are processed?

What is an HMO?
The term HMO stands for Health Maintenance Organization. A good working definition is:"A health plan that offers prepaid comprehensive health coverage's for both hospital and physician services; members are required to use participating providers and are enrolled for specified periods of time."

Common provisions of HMO health insurance includes the following:

1. Members choose a primary care physician (PCP) that is part of the contracted provider network.
2. Member pays a physician co-payment and/or a hospital co-payment at the time of service
3. Member is not usually responsible for submitting claims
4.member must have an authorized referral before seeking specialty care outside  of their PCP or medical group
5.most HMO offer preventive care benefits such as well baby care, immunizations, andprenatal benefits

HMO Models:

HMO models essentially define the provider relationships and marketing focus. There are four basic types of HMO models:

1. IPA: Independent Practice Association In IPAs, physicians practicing in their own offices participate in a prepaid health care plan. The physicians charge agreed-upon rates to enrolled patients and bill the IPA on a discounted fee-for-service or captivated basis. According to industry reports from Marion Merell Dow Managed care Digest, updated edition 1994, 83% of the fastest growing smaller HMOs are IPAs.

2. Staff: A staff-model HMO consists of a group of physicians who are either salaried employees of a specially formed professional group practice that is an integral part of the HMO plan, or salaried employees of the HMO. Medical services in staff models are delivered at HMO-owned health centers. Kaiser is a staff model HMO.

3. Network: A network-model HMO is an organizational form whereby the health maintenance organization contracts for medical services within a "network" of medical groups or multi-specialty medical clinics.

4. Group: There are two kinds of group-model HMOs: a) the closed panel plan, in which medical services are delivered in the HMO-owned health center or satellite clinic by physicians who belong to a specially formed but legally separate medical group that only serves the HMO, and b) the plan in which the HMO contracts with an existing, independent group of physicians to deliver medical care.

Source: Glossary of Terms Used in Managed care, 1994, Medical Group Management Assn.

Federally Qualified HMOs:

The majority of HMOs are "federally qualified." To become a federally qualified HMO, the Federal HMO Act of 1974 requires an HMO to provide ten "basic benefits," most of them without limits:

1. Physician services and referrals.
2. Hospitalizations.
3. Well child care; prenatal care; periodic health evaluations; eye examinations and ear examinations for children under age 18; immunizations; and infertility services.
4. Emergency treatment inside and outside the HMO's service area.
5. Diagnostic laboratory tests and diagnostic services.
6. Outpatient, inpatient, and short-term rehabilitation services.
7. Physical, occupational and speech therapy (up to two months, if the patient shows improvement).
8. Outpatient mental health benefits (20 visits).
9. Detoxification and referral services for alcohol and drug abuse or addiction.
10. Home health care.

Additional benefits are often offered by the HMO, depending on the plan purchased by the individual or by the group.

More than half (53 percent) of all of HMO members, or about 24 million people, were enrolled in federally qualified HMOs at the end of 1993, and thus had at least the amount of coverage required by the HMO act.

How Do You Access care with An HMO?

The majority of HMO members are covered through a "group" plan. The "group" is usually the employer the member/or their spouse work for.

The procedure may vary by HMO model, but the usual procedure is for each member to choose a Primary care Physician (PCP) through his/her employer group. The PCP is accountable for the total health services of the members he/she serves and arranges for specialty care and hospitalization.

Primary care physicians include those in general or family practice, internal medicine, pediatrics, and obstetrics/gynecology.

Members of an HMO have unlimited visits to their PCP. When a member needs to receive additional services not provided by the PCP a written referral is required which must be authorized by the HMO for the services to be covered.

A referral is the process whereby a patient is sent by one practitioner (PCP) to another practitioner or program for services or consultation that the referring source is not prepared or qualified to provide.

Co-payments, Your Share of the Bill

One of the factors that create value in a health care benefit package is the level of cost sharing faced by the member in the form of a co-payments. A co-payment is a fixed dollar amount that members must pay each time they receive a specified service.

The Federal HMO Act of 1974 also limits member cost sharing. Co-payments may not be greater than 50 percent of the cost of providing any single service and not, in aggregate, more than 20 percent of the cost of all basic health services. The total of all co-payments made by an HMO member in a year may not exceed twice the annual premium for that member's coverage.

Claims Processing:

Members do not usually have to become involved in the claims processing aspect of an HMO. Normally a claim is sent directly to the HMO from the provider. Exceptions usually involve emergency care out of the HMO service area. In this case the member may have to pay the claim and then submit it to the HMO for reimbursement.

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What is a PPO (Preferred Provider Organization)?

Overview of the Principal Types of Health care Plans

An Introduction to PPOs/EPOs

If you want to know more about PPOs/EPOs or want to know why you might choose a PPO/EPO for your health insurance needs, this page may provide you with some of the answers.

• What Is a PPO or EPO?
• The Basic Characteristics of a PPO/EPO
• How to Access care
• How Does a PPO/EPO Differ From an HMO?
• Services That Are Usually Covered
• How Services Are Paid
• Deductibles
• Coinsurance
• Customary and Reasonable
• Out- Of -Pocket Maximum
• How Claims Are Processed

What Is a PPO or EPO?

PPOs, Preferred Provider Organizations, are groups of hospitals and/or physicians who, directly or through a third party, develop contractual arrangements with payers to provide a specified set of health care services under defined financial arrangements.

EPOs, Exclusive Provider Organizations, are similar to PPOs in their organization and purpose. Unlike PPOs, however, EPOs limit their beneficiaries to participating providers for their health care services.

Nationally, enrollment in EPOs increased 18% from 8.3 million in 1992 to 9.8 million in 1993. In 1993, an estimated 328 PPOs offered an EPO option, and 69% of these required users to actively enroll in the EPO.

The main reason PPOs are offering their customers EPOs is the benefit of increased control of health care cost.

Common provisions of PPO/EPO health insurance include the following:

Consumers have a choice of using in-network contracted providers at lower costs or out-of-network providers for increased co-payments, deductibles and coinsurance charges. In-network providers are those providers who have contracts with the PPO/EPO.

Out-of-network providers are all other physician and hospital services not contracted with the PPO/EPO.

The insured makes a decision every time he/she needs care to use PPO/EPO and get better benefits or go outside of the network and pay more. No claim forms for in-network services out -of -network insureds are responsible for submitting claims in a PPO/EPO.

Now that you have a general definition of what a PPO/EPO type of insurance is, it's time to move on to a more detailed explanation of the basic characteristics of a PPO/EPO.

The Basic Characteristics of a PPO/EPO:

The basic characteristics of PPO/EPOs discussed below include; selected provider panel, negotiated payment rates, rapid payment terms, utilization management, access to care, services that are covered, what a member pays for services, and how a member would receive reimbursement for services received and paid for.

Selected provider panel: PPOs/EPOs typically contract with selected providers in a community to provide health services for covered individuals. Most PPOs/EPOs contract directly with hospitals, physicians, and other diagnostic facilities. Providers are selected to participate on the basis of their constant efficiency, community reputation, and scope of services.

Negotiated payment rates: Most PPO/EPO participation agreements require participating providers to accept the PPO's/EPO's attempt to negotiate payment rates that provide it with a competitive cost advantage relative to charge based payment systems. These negotiated payment rates usually take the form of discounts from charges, all-inclusive per diem rates, or payments based on diagnosis-related groups.

Rapid payment terms: Some PPOs/EPOs are willing to include prompt payment features in their contracts with participating providers in return for favorable payment rates. For example, a PPO/EPO may commit to pay all "clean" claims submitted by its providers within 15 days of submittal in return for a 5% discount from charges.

Utilization management: Many PPOs/EPOs implement utilization management programs to control the utilization and cost of health services provided to their covered beneficiaries. In the more sophisticated PPOs/EPOs, these utilization management programs resemble programs operated by HMOs.

Some EPOs parallel HMOs in that they not only require exclusive use of the EPO provider network, but also use a "gatekeeper" approach to authorizing non-primary care services. In these cases, the primary difference between an HMO and EPO is that the former is regulated under HMO laws and regulations while the latter is regulated under insurance laws and regulations.

EPOs usually are implemented by employers whose primary motivation is cost saving. These employers are less concerned about the reaction of their employees to severe restrictions on the choice of health care providers.

How to Access care

In a PPO type of health insurance, the insured is free to choose a doctor from the "in-network" or "out-of-network" list of providers each time he/she needs health care. The PPO benefit plans with the deductibles, co-payments and coinsurance are designed to discourage the insured from frequently using the out-of-network providers due to the increased costs to both the insured and the insurance company.

How Does a PPO/EPO Differ From an HMO?

In an HMO, the insured's choice of doctors and hospitals is limited to those that have agreements with the HMO to provide care. Exceptions are made in emergencies and when medically necessary. In contrast, an insured in a PPO can use doctors who are not part of the plan and still receive some coverage. In such cases, the insured will pay a larger portion of the bill him/herself and will have to fill out some claim forms.

Services That Are Usually Covered

The types of services that may be insured through a PPO/EPO type product typically include:

  • office visits
  • x-ray and laboratory procedures
  • ambulance
  • some durable medical equipment (e.g., wheelchair)
  • hospitalization
  • preventive care benefits

The level of coverage for these services themselves will vary from policy to policy. Not all insurance companies offer the same level of benefits.

How Services Are Paid?

PPOs and EPOs are not as costly as Indemnity type of insurance, but they are more expensive than HMOs generally.

When using PPO services "in-network," payment of service often resembles a HMO in that there are co-payments for office visits, emergency room use and some other services.

PPOs also have deductibles and coinsurance. Before the insurance company will begin paying for covered services someone has received, the person insured is responsible for paying a deductible.


The deductible is the amount that a covered individual must pay before an insurance company begins reimbursing for eligible expenses. Deductibles vary according to the plan purchased, but they range from $100 - $750.

Once the deductible is met, then the insurance company will begin to reimburse the member for eligible expenses. The amount the insurance company reimburses the insured depends on the coinsurance the insured is responsible for, the amount the provider of service is billing, and the usual, customary and reasonable (UCR) amount the insurer will consider eligible for reimbursement.


Coinsurance: refers to the arrangement by which the insurer and the insured share a percentage of the cost of usual, customary and reasonable charges for covered services (after the deductible is met).

The coinsurance of a PPO plan is typically a defined percentage, in contrast to co-payments, which are flat dollar amounts. For example, in a typical 80/20 plan, the 20% paid of the customary and reasonable charges for eligible expenses by the member is the coinsurance.

Note: the insured is responsible for any charges over and above the customary and reasonable charges.

Usual, Customary and Reasonable (UCR):

Usual, customary and reasonable (UCR): The maximum amount an insurer will consider eligible for reimbursement under group health insurance plans based upon its surveys of prevailing fees in a geographic area. Typically, the insured is responsible for any charges for a covered service that exceed the usual, customary and reasonable (UCR) amount indicated for that specific service. For example, if an insured receives a bill for a covered service in the amount of $125, and the UCR charge for that covered service is $100, the member will be responsible to pay the appropriate coinsurance of $100 in addition to the $25 that exceeds the UCR.

Out- Of- Pocket Maximum:

Out- Of -Pocket Maximum Expenses: As soon as an Insured Person incurs expenses for Covered Services equal to the Out-of-Pocket Expense Maximum, the Benefit percentage will be increased to 100%. An insured will need to refer to their benefit contract to learn those expenses that will not be applied toward the Out-of-Pocket Expense Maximum.


The following is a sample of the amount an insured might be financially responsible for a given hospital bill on a typical PPO type health insurance policy:

Plan design = $250 deductible 90%/70% Preferred Provider Organization (PPO), $5,000 Maximum out-of-Pocket
Total Charges $10,000
Expenses not covered ( 300)** This may vary
Eligible Charges 9,700
Deductible ( 250)


Remaining Charges to be applied to co-insurance $ 9,350

90% of 5,000 (Max. Out-of-Pocket) is $4,500 (company share)

10% of 5,000 (Max. Out-of-Pocket) is $500 (insured share)

Insured pays $500
Company pays $4,500
Max. Out-of-Pocket $5,000

- $5,000

Remaining charges 4,350

Company pays 100% thereafter (4,350 up to Lifetime Maximum Benefit - often 1 million)

Balance due -0-

Subscriber pays: $1,050
Company pays:   $8,950

Total paid: $10,000

How Claims Are Processed?

In a PPO the insured has the choice of "in-network or out-of-network." When the in-network plan is used, the insured often just pays the co-payment and the provider files the claims. Out-of- network claims are processed very much like an indemnity plan. The insured will pay the doctor or provider of services at the time the service is received ("fee-for-service"). It is then the insured's responsibility to submit any proof of payments to the insurance company to receive reimbursement. The insurance company will review the claim taking into account the amount of deductible the insured may be responsible for or has already applied to their benefits, the coinsurance the insured is responsible for, what the usual, customary and reasonable charges are for the services being billed, and whether or not the insured has possibly met their maximum out-of-pocket limit for the calendar year. Once the claim is reviewed, the insurance company will then reimburse the insured the appropriate amount.

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What is a Traditional Indemnity Plan?

This introduction to Indemnity will give you a very basic understanding of how this type of health insurance generally works throughout the industry.

If you want to know more about Indemnity health insurance plans or want to know why you might choose a Indemnity health insurance plan for your health insurance needs, this page may provide you with some of the answers.

• Basic characteristics of indemnity health insurance
• How you access care
• The type of services that are covered
• How and what you pay for services
• What does deductible mean?
• What does coinsurance mean?
• What does customary and reasonable mean?
• What does maximum out of pocket mean?
• How indemnity claims are processed

Basic Characteristics of Indemnity Health Insurance:

Indemnity Health Insurance is the "standard" type of health insurance someone can purchase to cover comprehensive major medical benefits. Some insurance companies offer individual policies, meaning you can buy the insurance for yourself and your family directly from the insurance company. Some insurance companies offer group policies, meaning you can purchase the insurance through your employer. Many insurance companies offer both individual and group.

Most Indemnity policies work the same way. Common provisions include the following:

You may go to any physician of your choice to access care.
You must meet a deductible before any coverage applies.
You pay a coinsurance (of usual, customary and reasonable charges) for covered services. You are responsible for submitting claims.

This is a general explanation of what an Indemnity Type of Health Insurance is. Read on and you'll find a more detailed explanation of the basic characteristics of Indemnity Health Insurance.

How Do You Access care?

Typically, if you have Indemnity Health Insurance, you can go to any doctor or provider of service you want to. There are no limitations. Therefore in order to receive care, all you need to do is choose a physician or provider and go.

What Kind of Services Are Covered?

The types of services you may be covered for on an indemnity type product typically include:

Office visits
X-ray and laboratory procedures
Some durable medical equipment (e.g., wheelchair)

The level of coverage for these services themselves varies from policy to policy. Not all insurance companies offer the same level of benefits. The coverage available depends on the policy the individual purchased or the policy the employer group offers.

How and What You Pay For Services:

Indemnity health insurance is normally more expensive to a member than an HMO or PPO type of insurance. Not only are the premiums for the policy normally higher than what might be paid for a PPO or HMO type of insurance, the financial responsibility you have toward eligible covered services is higher as well.

With Indemnity insurance, before the insurance company will begin paying for covered services you've received, you are responsible for paying a deductible.

What Does Deductible Mean?

The deductible is the amount that you as an "insured" must pay before the insurance company will begin reimbursing you for eligible expenses. In a true indemnity plan, a deductible must be met before reimbursement for any covered expenses begins. The amount of a deductible may range anywhere from $100-$500. Sometimes they're even higher.

Once you've paid the deductible, then the insurance company will begin to reimburse you for eligible expenses. The amount the insurance company reimburses you depends on a few things:

The coinsurance your policy states you are responsible for.
The amount your doctor or the provider of service you went to is billing.
The usual, customary and reasonable amount that the insurance company will consider eligible for reimbursement.

What Does Coinsurance Mean?

Coinsurance simply means that both you and the insurance company share a percentage of the cost of usual, customary and reasonable charges for covered services. The policy you purchase defines a percentage that you are responsible to pay and that the insurance company is responsible to pay. (For example, and "80/20" plan means you, as the member, are responsible to pay for 20% of covered charges, and the insurance company will pick up the remaining 80% of covered charges.)

There is a catch, however. With an Indemnity insurance, the coinsurance amount refers to the percentage of customary and reasonable charges you and the insurance company are responsible for paying for. Not a percentage of total charges a doctor or provider of service may charge.

What Does Usual, Customary and Reasonable Mean (UCR)?

Because you can go anywhere you'd like for services, chances are the insurance company won't have a contract with the doctor or provider of services you decide to go to. Therefore, the insurance company has no control over the amount of money your doctor or provider is billing for their services. The insurance company has to control costs somehow. What they (the insurance companies) do is establish usual, customary and reasonable charges for any kind of services you might receive.

Usual, Customary and Reasonable (UCR) is the maximum amount an insurance company will consider eligible for reimbursement under group health insurance plans. It is based on surveys of prevailing fees in a geographic area. Typically, you are responsible for any charges for a covered service that exceeds the usual, customary and reasonable (UCR) amount indicated for that specific service.

Example: You receive bill for a covered service in the amount of $125 and the UCR charge for that covered service is $100, then you will be responsible to pay the appropriate coinsurance of $100 in addition to the $25 that exceeds the UCR.

Let's look at an actual example of what you would pay for a service...


You are on an 80/20 indemnity health insurance policy
Your deductible is $500 - (not bad as deductibles go)
You were in the hospital last month and just received a bill for $5000

The insurance company has reviewed the claim, has determined that the services are covered and that the UCR is $4000 ($1000 less than the actual bill).

The following lists out what you pay:

$500 = deductible (only if you have not already paid)
800 = 20% coinsurance of $4000 (UCR)
+1000 = amount that exceeds (UCR)
$2300 = the amount you pay


What Does Maximum Out-of-Pocket Mean?

In order to reduce the financial burden on the insured, most indemnity type health insurance policies have what is known as a maximum out of pocket amount indicated on your policy within the calendar year. Once that maximum is met, the insurance company will kick in and pay 100% (of UCR) for any additional covered expenses you incur for that year.

How Indemnity Claims Are Processed?

Normally, when you are on an indemnity policy, you will pay the doctor or provider of service at the time you receive the service ("fee-for-service"). It is then your responsibility to submit any proof of payments to the insurance company to receive reimbursement. The insurance company will review the claim taking into account:

The services being billed are covered on your policy

The amount of deductible you are responsible for (or have already applied to your benefits), The coinsurance you are responsible for, What the usual, customary and reasonable charges are for the services being billed,

Whether or not you have met your maximum out of pocket limit for the calendar year.

Once the claim is reviewed the insurance company will then reimburse you the appropriate amount.

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How do deductible plans work? (Individual and Family Plans)

The deductible is a calendar year deductible:   January 1st – December 31st .

After you have paid in medical bills the amount equal toward your deductible, the Blue Cross Major Medical PPO insurance plan pays 90% and you pay 10% until you reach your “out of pocket maximum” (Other options are available including 80%/20% coverage.) After you have paid out the out of pocket maximum for any calendar year then the insurance pays 100% up to the lifetime maximum. 

Example:  If your eligible medical costs for the year total $30,000 for a covered person, and you’ve chosen the $500 deductible option with the Blue Cross Major Medical PPO plan.  

       You pay your deductible ($500).

       You pay 10%, and the plan pays 90% of the eligible charges (in network) until you reach your out-of-pocket maximum ($500) – (your deductible plus your co-insurance of 10%)

       Then the plan pays 100%. 

You would have paid - $1000

The plan would have paid - $29,000

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How are pre-existing conditions covered? (Individual and Family Plans) 

This is probably the single most asked question regarding individual health insurance, and probably the most important as well.  The first thing to note is that acceptance is not guaranteed for individual health insurance plans.  That is to say that it is possible that someone with pre-existing conditions may be declined coverage (see what if I am declined)  This depends on the specific condition and the cost of treatment and medication for that condition.  If you are approved, companies treat pre-existing conditions differently as outlined below:

Blue Cross Blue Shield of California –  Pre-existing conditions that are not disclosed on your application are not covered until after you have been on the plan for 12 months. A  pre-existing condition is one for which, in the 12 months before the plan took effect, car was received, diagnosis was made or symptoms were present that would cause most people to seek care.

HumanaA pre-existing condition is a sickness or injury which was diagnosed or treated, or which produced signs or symptoms that would cause an ordinary prudent person to seek treatment, during the 5 year-period before the covered persons' effective date of  coverage. Benefits for pre-existing conditions are not payable until the covered person's coverage has been in force for 12 consecutive months with Humana. Humana will waive the pre-existing limitation for those conditions disclosed on the application provided benefits relating to those conditions are not excluded. Conditions specifically excluded by rider are never covered.

Golden Rule
(United Healthcare)
Pre-existing conditions will not be covered during the first 12 months after an individual becomes a covered person. This exclusion will not apply to conditions which are both: (a) fully disclosed to Golden Rule in the individual’s application; and (b) not excluded or limited by our underwriters.

A preexisting condition is an injury or illness: (a) for which a covered person received medical advice or treatment within 24 months prior to the applicable effective date for coverage of the illness or injury; or (b) which manifested symptoms which would cause an ordinarily prudent person to seek diagnosis or treatment within 12 months prior to the applicable effective date for coverage of the illness or injury.

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What if I am declined coverage?   (Individual and Family Plans)

If you are declined coverage you may be eligible for a high risk health pool. See the information below for information. 

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can I see any doctor I want? (Individual and Family Plans)

Blue Cross Blue Shield of CA – Find a physician, dentist or other health care professional in the Blue Cross Blue Shield provider directory. Evaluate the breadth of the provider network.

Health Net After a waiting period of at least 12 months, but not to exceed 18 months, will pay benefits under Individual Preferred for a pre-existing condition for covered expenses. Medical conditions are not considered pre-existing if they meet certain requirements.

For a list of network clinics - click on the link below.

Broad provider network PPO plans give you access to a nationwide network of doctors and hospitals, with no referrals necessary. The PPO network includes nearly 300,000 doctors and hospitals. Since these providers charge lower rates for Humana members, and you pay a smaller share of the cost when you use these providers, you have lots of ways to save money on health care. Evaluate the network.

United Healthcare
– Find a physician, dentist or other health care professional in the Golden Rule provider directory. Evaluate the provider network.

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How long does it take to get coverage approved? (Individual and Family Plans)

Generally, it takes from 2-6 weeks to receive confirmation that your application has been approved. The amount of time your application takes is usually dependant on if medical records are requested.  If the health carrier requests medical records to help evaluate your application, this process may take several weeks depending on the clinics response. We suggest that if medical records are requested that you take a proactive role in getting the medical records to the health carrier.

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What is California Risk Insurance Pool?

California Health Insurance Risk Pool

(888) 398-3927
Open To New Enrollees - 
12 Month Waiting Period

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Are my premium payments tax deductible? (Individual and Family Plans)

In short, if you are self-employed, a partner in a partnership or S Corporation shareholder owning more than 2% of the corporation's stock, and you received wages from that S Corporation and you (or your spouse) are not eligible to participate in an employer paid plan, you can deduct up to 100% of the premiums for the tax year 2004. Be sure to consult your tax advisor regarding your eligibility for this deduction.  Also, here are some helpful links:  

Link to IRS website publication 535 – Business expenses

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