Health insurance plans: HMOs and PPOs

In an effort to rein in spiraling health care costs in the U.S., many health insurance plans have turned to managed-care programs. Managed-care programs have networks of health care providers, such as physicians, nurses, and physical therapists, who have contractually agreed to accept a set fee for each of their services. The health insurance plan typically pays the majority of this fee, and you as the patient pay the remaining part, called the co-pay.

The two most common types of managed-care programs are health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

Health maintenance organizations

HMOs typically have the lowest premiums and co-pays than other plans. HMOs enter into contracts with health care providers and facilities to form provider networks. When you choose a provider within the network, you’ll usually pay a small co-payment for each visit. However HMOs are also the least flexible.

When you enroll in an HMO you have to choose a primary care provider (PCP). The PCP is usually a family physician, but a woman could choose a gynecologist and a pediatrician could be the PCP for a child. If the physician you want as your PCP is not in the HMO’s network, you have to choose another doctor or pay extra to continue seeing that physician.The PCP serves as the “gatekeeper” for all of your health care services.

When you need medical care, except in emergencies, you have to see your PCP first and get a referral from them to a specialist if needed. For example, if you have a problem with your hearing, you need to see your PCP first and they will refer you to an audiologist. An exception is that women usually don’t need a referral to see an in-network gynecologist for routine tests and obstetrical care.

If you see a specialist in the HMO’s network you only have to pay a small co-payment. If you don’t get a referral first, or see a doctor outside of the network, you might have to pay the full amount for that doctor’s services.

The HMO offers the lowest premiums and co-pays among managed plans, but also the least flexibility. You’re usually limited to seeing providers in the plan’s network and must have a referral each time from your PCP.

Preferred provider organizations

Like HMOs, PPOs have networks of providers and facilities, who are contractually agreed to accept in-network allowed charges for their services. The premiums and co-pays are higher for PPOs than HMOs, but PPOs give you more flexibility. You can see any provider in the PPO’s network without needing a referral. In fact, with a PPO you don’t have to choose a PCP.

When you see an in-network provider you typically pay a small co-pay. PPOs often have much larger networks than HMOs. Additionally, if you choose a provider outside of the PPO’s network, the PPO will still pick up some of the cost of the visit. You may have to pay the difference between the provider’s actual charge and the PPO’s in-network allowed charge for the same service.

Some PPOs have health savings accounts, in which the insurer provides funds to help pay co-pays. Both HMOs and PPOs typically include deductibles. You are responsible for all provider costs until you’ve met the annual deductible. At that point the insurer begins paying the majority of costs for each visit and you pay the remainder.

Plans also typically include an out-of-pocket limit. Once the total health care expenses you’ve paid during the year reach that limit, the insurer pays 100% of costs for the rest of the year.

HMOs and PPOs are the most common types of managed-care insurance. Below are two less common types.

Point of service plans

POS plans combine the features of HMOs and PPOs. With POS plans you choose whether to use HMO or PPO insurance features whenever you see a provider. POS plans typically have HMO-type policies, but allow you to see a provider outside of the network for a higher fee. Some HMOs include a POS plan to allow you to see providers out of network.

Exclusive provider organizations

EPOs have the flexibility of PPOs in that you don’t need to choose a primary care provider and you don’t need referrals to see specialists. They also have the lower premiums and co-pays of HMOs. But the networks are limited in size, and EPOs typically don’t cover non-emergency care outside of their network.

This article has given the features of the most common health care insurance plans. However you should know there are significant variations out there. Some plans that call themselves HMOs actually have many of the features of PPOs, and vice-versa.

You should carefully examine the terms and features of any health care plan you are considering.