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There are three basic types of managed care health insurance
plans: (1) HMOs, (2) PPOs, and (3) POS plans.
HMOs
A health maintenance organization (HMO) is a type of managed healthcare system.
HMOs, and their close cousins, preferred provider organizations (PPOs), share
the goal of reducing healthcare costs by focusing on preventative care and
implementing utilization management controls.
Unlike many traditional insurers, HMOs do not merely provide
financing for medical care. The HMO actually delivers the treatment as well.
Doctors, hospitals, and insurers all participate in the business arrangement
known as an HMO.
HMOs provide medical treatment on a prepaid basis, which means
that HMO members pay a fixed monthly fee, regardless of how much medical care is
needed in a given month. In return for this fee, most HMOs provide a wide
variety of medical services, from office visits to hospitalization and surgery.
With a few exceptions, HMO members must receive their medical treatment from
physicians and facilities within the HMO network. The size of this network
varies depending on the individual HMO.
When you join an HMO, you choose a primary care physician
(PCP) who is your first contact for all medical care needs. The primary care
physician provides your general medical care and must be consulted before you
can see a specialist. Because of this control system, HMO costs tend to increase
less rapidly than other insurance plans.
Advantages of HMOs
Low out-of-pocket costs
With most types of insurance, you are responsible for paying a percentage of the
bill every time you receive medical care. Additionally, there may be a
deductible that must be met before insurance starts picking up the tab. In
contrast, HMO members pay a fixed monthly fee, regardless of how much medical
care is needed in a given month. Instead of deductibles, HMOs often have nominal
co-payments.
Focus on wellness and preventative care
By reducing out-of-pocket costs and paperwork, HMOs
encourage members to seek medical treatment early, before health problems become
severe. Additionally, many HMOs offer health education classes and discounted
health club memberships.
Typically no lifetime maximum payout
Unlike most health insurance plans, HMOs generally do
not place a limit on your lifetime benefits. The HMO will continue to cover your
treatment as long as you are a member.
Disadvantages of HMOs
Tight controls can make it more difficult to get specialized care
As an HMO member, you must choose a primary care physician (PCP). Your PCP
provides your general medical care and must be consulted before you seek care
from another physician or specialist. This screening process helps to reduce
costs both for the HMO and for HMO members, but it can also lead to
complications if your PCP doesn't provide the referral you need.
Care from non-HMO providers generally not covered
Except for emergencies occurring outside the HMO's
treatment area, HMO members are required to obtain all treatment from HMO
physicians. The HMO will not pay for non-emergency care provided by a non-HMO
physician. Additionally, there may be a strict definition of what constitutes an
emergency.
PPOs
Like an HMO, a preferred provider organization (PPO) is a managed healthcare
system. However, there are several important differences between HMOs and PPOs.
A PPO is actually a group of doctors and/or hospitals that
provides medical service only to a specific group or association. The PPO may be
sponsored by a particular insurance company, by one or more employers, or by
some other type of organization. PPO physicians provide medical services to the
policyholders, employees, or members of the sponsor(s) at discounted rates and
may set up utilization control programs to help reduce the cost of medical care.
In return, the sponsor(s) attempts to increase patient volume by creating an
incentive for employees or policyholders to use the physicians and facilities
within the PPO network.
Rather than prepaying for medical care, PPO members pay for
services as they are rendered. The PPO sponsor (employer or insurance company)
generally reimburses the member for the cost of the treatment, less any
co-payment percentage. In some cases, the physician may submit the bill directly
to the insurance company for payment. The insurer then pays the covered amount
directly to the healthcare provider, and the member pays his or her co-payment
amount. The price for each type of service is negotiated in advance by the
healthcare providers and the PPO sponsor(s).
Advantages of PPOs
Free choice of healthcare provider
PPO members are not required to seek care from PPO physicians. However, there is
generally strong financial incentive to do so. For example, members may receive
90% reimbursement for care obtained from network physicians but only 60% for
non-network treatment. In order to avoid paying an additional 30% out of their
own pockets, most PPO members choose to receive their healthcare within the PPO
network.
Out-of-pocket costs generally limited
Healthcare costs paid out of your own pocket (e.g., deductibles and co-payments)
are limited. Typically, out-of-pocket costs for network care are limited to
$1,200 for individuals and $2,100 for families. Out-of-pocket costs for
non-network treatment are typically capped at $2,000 for individuals and $3,500
for families.
Disadvantages of PPOs
Less coverage for treatment provided by non-PPO physicians
As mentioned previously, there is a strong financial incentive to use PPO
network physicians. For example, members may receive 90% reimbursement for care
obtained from network physicians but only 60% for treatment provided by
non-network physicians. Thus, if your longtime family doctor is outside of the
PPO network, you may choose to continue seeing her, but it will cost you more.
More paperwork and expenses than HMOs
As a PPO member, you may have to fill out paperwork in order to be reimbursed
for your medical treatment. Additionally, most PPOs have larger co-payment
amounts than HMOs, and you may be required to meet a deductible.
POS plans
A Point of Service (POS) plan is a type of managed healthcare system that
combines characteristics of the HMO and the PPO. Like an HMO, you pay no
deductible and usually only a minimal co-payment when you use a healthcare
provider within your network. You also must choose a primary care physician who
is responsible for all referrals within the POS network. If you choose to go
outside the network for healthcare, POS coverage functions more like a PPO. You
will likely be subject to a deductible (around $300 for an individual or $600
for a family), and your co-payment will be a substantial percentage of the
physician's charges (usually 30-40%).
Advantages of POS plans
Maximum freedom
POS coverage allows you to maximize your freedom of choice. Like a PPO, you can
mix the types of care you receive. For example, your child could continue to see
his pediatrician who is not in the network, while you receive the rest of your
healthcare from network providers. This freedom of choice encourages you to use
network providers but does not require it, as with HMO coverage.
Minimal co-payment
As with HMO coverage, you pay only a nominal amount
for network care. Usually, your co-payment is around $10 per treatment or office
visit. Unlike HMO coverage, however, you always retain the right to seek care
outside the network at a lower level of coverage.
No deductible
When you choose to use network providers, there is
generally no deductible. Thus, coverage begins from the first dollar you spend
as long as you stay within the POS network of physicians.
No "gatekeeper" for non-network care
If you choose to go outside the POS network for
treatment, you are free to see any doctor or specialist you choose without first
consulting your primary care physician (PCP). Of course, you will pay
substantially more out-of-pocket charges for non-network care.
Out-of-pocket costs limited
Healthcare costs paid out of your own pocket (i.e.,
deductibles and co-payments) are typically limited. The average yearly limit for
individuals is around $2,400. For families, the average yearly limit is
approximately $4,000.
Disadvantages of POS plans
Substantial co-payment for non-network care
As in a PPO, there is generally strong financial incentive to use POS network
physicians. For example, your co-payment may be only $10 for care obtained from
network physicians, but you could be responsible for up to 40% of the cost of
treatment provided by non-network doctors. Thus, if your longtime family doctor
is outside of the POS network, you may choose to continue seeing her, but it
will cost you more.
Deductible for non-network care
In most cases, you must reach a specified deductible
before coverage begins on out-of-network care. On average, individual
deductibles are around $300 per year, and the average annual family deductible
is about $600. This deductible amount is in addition to the co-payment for
out-of-network care.
Tight controls to get specialized care
As in an HMO, you must choose a primary care physician (PCP). Your PCP provides
your general medical care and must be consulted before you seek care from
another doctor or specialist within the network. This screening process helps to
reduce costs both for the POS and for POS members, but it can also lead to
complications if your PCP doesn't provide the referral you need.
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