Think you have a Cadillac plan because you have traditional health insurance instead of an HMO? Think again.

WHEN IT COMES TO health insurance, it often looks as if the world is divided into the haves and the have nots. If you're lucky enough to have traditional indemnity insurance, the thinking goes, you enjoy the freedom to choose your own doctor, who has the freedom to order any treatment he or she deems necessary. And then there's the other 92% of us, stuck in those penny-pinching HMOs, PPOs and other Orwellian acronyms of managed care.

But talk to one of the supposedly fortunate few who still have a traditional health plan, and you'll get quite a different picture. These days, we're all health-insurance have-nots — or at least have-lesses. Facing ever-increasing medical costs, the indemnity plans are cutting back, too. Their patients are running into a confusing thicket of exclusions, exceptions, co-payments and deductibles — all of which are steadily eroding their choices and increasing their out-of-pocket expenses. Sandy Kelly, a nurse from New Jersey, says her indemnity health plan includes so many clauses it's tough to know in advance what will be covered and what won't. She often has no idea how much of a medical bill she will have to pay until she gets a check back from the insurance company. "You think you are buying the Cadillac," she says. "You had better see what that Cadillac has in store. You might not have a light in the glove compartment."

So if you're hoping to switch back to a traditional indemnity plan, you should know that the grass may not always be greener on the other side. If you're now in such a plan, there are ways to avoid some of the common pitfalls, and ways to make the system work to your advantage.

1. "You can go to any doctor, but don't expect us to pay as much as you expect."
Traditional plans claim they pay 80% of your medical bill. But when you read the fine print on your policy you see that isn't always true. Health plans reimburse their members 80% of "reasonable and customary" charges. What's reasonable and customary? It's what other health-care providers of similar training or experience in the same or similar geographic area charge for such services. If your doctor's fee is higher, you end up paying the difference.

How do you know if your doctor's charges are typical? You don't. Often the only way to find out how much of your total bill will be covered is to send in a claim and hope for the best. The reasonable and customary rates aren't published in your benefits manual.

Don't expect your doctor to know what they are, either. The plans themselves differ greatly. Plus, your physician doesn't even know what the competition next door is charging since antitrust laws prevent rivals from comparing prices. According to Barbara Seller, a midwife practicing in New York City the only way she can tell if her rates are in the ballpark with her peers is from feedback from her patients. "They would have a heart attack if it was out of line," she says. "I always try to keep (my fee) where it is until our expenses go up and we have to raise it."

2. "We're pretty arbitrary about how much we'll cover."
Margaret Wilton, a school teacher from New Jersey, was diagnosed with breast cancer four years ago. She was shocked when her insurance company didn't cover a portion of her treatment. "I went to Sloan Kettering and they said it was too expensive," Wilton says.

Wilton's experience isn't unique. The American Medical Association and the Medical Society of the State of New York are suing Metropolitan Life for setting "reasonable and customary" charges using allegedly unreliable or outdated data that isn't available to the public. The AMA also contends that the fees are too low. In another case, The Medical Association of Georgia is suing Blue Cross & Blue Shield of Georgia for breach of contract. In this case, Georgia Blue adopted new rules and regulations that would calculate how much it will reimburse doctors according to the fees actually received by physicians rather than by what they initially charge. This new method ensures lower payment for the doctors and higher out-of-pocket expenses for patients who must pay the difference.

3. "We only cover you if you are sick."
Indemnity plans aren't in the business of paying for preventive care. Unlike their HMO counterparts, they don't typically cover most immunizations and annual check-ups for anyone over the age of six. Most will reimburse you only if you are sick and receive a diagnosis from your physician.

If you have a very generous plan you'll be reimbursed for one physical a year. Sounds great, right? Not so fast. "What we are finding out is that when you go to your ob/gyn, it counts towards your physical," Kelly says. "But we all know that it is not (a physical)." As a result, women are often stuck picking up the entire tab for physicals by internists.

4. "We try to delay payment as much as possible."
Barbara Xavier, an office manager in a midtown Manhattan dentist's office, says insurance companies will try anything to delay payment. "They used to request an x-ray as a delay tactic," she says. "Then all the doctors got smart and started enclosing them." "Now they are changing post-office boxes." Xavier, who has 30 years' experience, finds she is constantly getting claims returned because of an address change at the insurance company. She then has to contact the patient, who in turn has to go back to his company benefits manager to find the new address. "By the time the patient gets back to me, two weeks have gone by," she says. A spokesman for the Health Insurance Association of America says he isn't aware of any change-of-address complaints or that such delaying tactics are prevalent in the industry. According to the HIAA, most claims are paid in 14 days.

However, consumers and health-care providers have filed a total of 67,500 complaints against insurance companies in New York State alone since its Prompt Payment Law went into effect in January 1998. According to the New York law, HMOs and insurers are required to pay undisputed claims within 45 days of receipt. In October 2000, the New York Superintendent of Insurance Neil D. Levin announced that the department had issued fines against 21 health insurers (including ones that offer traditional plans) and HMOs totaling $575,000.

The majority of states have prompt payment laws, although they vary greatly. (Currently, only Alaska, the District of Columbia, Idaho, Indiana, Iowa, Nebraska, New Hampshire, North Dakota, Oregon, Rhode Island, South Carolina and South Dakota don't have such a statute.) If you do live in a state with this protection, consider including a copy of the law with your claim. This is one of the best ways to ensure you get reimbursed quickly. You can find this on your state's department of insurance Web site. Click here for a listing of all the state insurance regulators.

5. "You're paying first class prices but getting the same care as everyone else."
With 92% of the insured population participating in some type of managed-care plan, most health-care providers feel pressured into joining up with an HMO to survive. "How can you close the door on that revenue stream?" asks Jeffrey Gopen, a physical therapist in Massachusetts.

Ilana Zarafu, the former medical director and now a board member of Children's Specialized Hospital in Mountainside, New Jersey, says she has only two professional friends who don't accept Medicaid or HMOs. At first many doctors thought they would all band together and refuse to join these networks, Zarafu says. "But in metropolitan areas there are gluts of doctors and you can't be exclusive," she says.

How does this affect you? Chances are, your expensive physician is giving your neighbor the same treatment for a fraction of the price. If virtually all of your doc's patients are in an HMO, it's likely that he has tailored his practice accordingly — particularly when it comes to how many patients he has and how much time he gives them. "The majority of facilities, including private practice, are working at maximum capacity and trying to increase productivity," says Gopen. "Outward pressure to improve productivity comes down to seeing more patients and spending less time with them."

But it also means that if you choose to join an HMO yourself, you won't necessarily have to change doctors. And if you do, it's now a lot easier to find good physicians who are participating in a plan than it was just a couple of years ago.

6. "Women may be better off in an HMO or PPO."
Elaine Weiss, a 54-year-old from New Jersey, discovered that her insurance company didn't cover her last pelvic exam. The reason? She had one the prior year. Although her doctor recommends she come in annually, her plan will reimburse her for a pelvic exam and mammogram only once every two years.

Her gynecologist's recommendation, however, is in line with the experts'. The American College of Obstetricians and Gynecologists recommends that women receive an annual pelvic exam and Pap smear. Women in their 40s should receive a mammogram once every two years and women after age 50 should get one every year.

Women who want to follow those guidelines without incurring out-of-pocket expenses may be better off in an HMO. Managed-care companies typically cover annual pelvic exams, pap smears and mammograms. They often pick up a portion of the cost for birth control pills too — a bonus for the women who shell out around $35 a month for this medication. Oxford Health Plans even promises to send its members friendly reminders if they miss their cancer screenings.

7. "We're more like an HMO than you realize."
In an effort to cut costs, indemnity plans are managing the care and services patients receive more than ever before. Consumers are finding more claims are rejected because they aren't deemed "medically necessary" — a term once used almost exclusively in HMO contracts. "The fact that your doctor has ordered it doesn't qualify anymore," says Kelly, the New Jersey nurse. "It is up to their doctors to decide."

Over time, the distinction between HMOs and indemnity plans has become increasingly blurred, says Larry Levitt, vice president at the Kaiser Family Foundation. "Traditional plans have introduced utilization measures that were historically found only in managed-care plans, he says.

For example, like HMOs, traditional health plans now assign hospital patients a case manager to precertify their hospital admission and review their continued stay. These managers, typically registered nurses, usually cannot reject treatment. But they can refer cases to a doctor in your plan who can deny authorization of payment.

Another familiar HMO-style feature found in traditional plans is the drug formulary — the list of medicines that a plan will pay for. When Blue Cross/Blue Shield of New Jersey sent out its list to its policyholders last year, it included a letter recommending they speak with their physicians about finding substitutions for prescriptions that weren't on the formulary.

"What has happened in the past 10 years is more customers have migrated from unmanaged indemnity to managed indemnity plans," says Allen Woolf, the medical director of Intracorp, a wholly owned subsidiary of Cigna. "This has been an industry standard that is not unique to Cigna."

8. "You better get used to a lot of paperwork."
The key to getting your medical bills covered is keeping impeccable records. Don't count on the insurance company to remind you that it owes you money.

Wilton, the schoolteacher, says she was able to resolve a dispute over her claims only by creating a spreadsheet and showing it to her insurer. With it she proved that she had indeed reached her deductible and her maximum out-of-pocket expense, and so should be reimbursed in full for her radiation therapy. "It is too much to handle when you are sick," she says. "You can't deal with it until you are well and angry." She's still waiting for the $2,000 she says the insurance company owes her.

9. "We are more expensive than you realize."
Those deductibles, co-payments and rejected claims can add up to some serious moolah. Jennifer Allen, a 29-year-old New Jersey woman, recently switched out of her traditional plan into an HMO after she decided she was spending too much on her health care. "It was strictly financial," Allen says. "The prescriptions alone would have bled me dry."

Since the late 1990s, a patient's total exposure to out-of-pocket expenses plus deductibles has spiked. According to David Zeller, who owns an insurance agency in Lynn, Massachusetts, insurance companies have been raising their deductibles at a frightening pace. As a result, he says, deductibles of $1,000 to $2,000 are increasingly common. Back in 1995, the average deductible was just $250, Zeller says.

At the higher deductibles, health insurance can amount to little more than coverage against a major illness, while routine health care is essentially uninsured. "A lot of my clients are using insurance for disasters and assume they will have to pay out of pocket for the rest of their care," says Barbara Seller, a midwife in New York.

10. "We change our rules constantly."
Traditional health plans are constantly tweaking their policies. Aetna U.S. Healthcare's Web site posts a summary of what it calls its "coverage policy bulletins." This is where it lists any changes in its coverage. During 2000, more than 200 services were revised, added or deleted. You try and keep up.

Katherine Grusenski, also a schoolteacher in New Jersey, receives an addendum to her plan every six to eight weeks. Then every year she gets a new booklet. She says she has to go through it word-by-word to make sure she has the same coverage one year to the next.

Xavier, the dental-office manager, says the only way she knows if a certain plan has made a change is when a claim is sent back with a rejection. "It used to be that crowns were covered every five years," she says. "Now they have decided a crown should last 10 years. They didn't tell anyone when they were going to do it. All of a sudden you just started getting denials."

And as if it weren't hard enough to keep track of one policy, try figuring out two policies and how they might work together. That's what you'll have to do if you and your spouse are covered both under your own plans and each other's. It's called coordination of benefits — and the upshot, according to Zarafu: "Each plan will say the other should pay."

And here's a final tip: Insurance companies sometimes make honest mistakes. They administer so many different plans for so many different employers that they can't possibly know the details of all of them. So if you've been denied a claim for something you thought was covered, call the insurer and ask to speak to a customer service rep. Have a copy of your plan ready and be prepared to read them chapter and verse. You just might be pleasantly surprised.