PPO, HMO and POS Health Insurance Plans

Guide provided by:  http://www.dmhc.ca.gov

Ever wonder about the differences between HMOs, POS and PPOs are?   Hopefully we can help you here.  If you're not sure what the differences are between the three, we can shed some light on that, too. First, though, a little history, just for context.

Back when insurance was first invented, it was a matter of paying the premium, going to your doctor, and paying the bill. If the service was covered in your policy, you filed a claim and the insurance company reimbursed you for their part. That's called Fee for Service (FFS) or Point of Service (POS) coverage, because all billing and payment take place at the point the service is provided.

As medical insurance became more commonplace, insurers developed other types of coverage. These days, we have three broadly defined categories of coverage - FFS and POS are called "traditional plans," and then there's Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans. We will discuss each plan in depth, and then show a comparison of the different kinds of health plans.

Health Maintenance Organization or HMO

Our first category is the Health Maintenance Organization, or HMO. The guiding principle behind an HMO is prevention. An HMO is intended to keep you healthy, so it will cover annual checkups, some tests to spot problems before they get bad, and other "preventive maintenance" services.

Think of it this way: Your 5,000-mile oil change, tune-up, and fluid check is your car's HMO. You don't want to miss that visit to your mechanic, because you may not see that little leak until the coolant runs down the driveway and your car overheats. Of course, no matter how careful you are, your car eventually will wear out, but if you take care of it, you can drive it much longer. Your body's the same. If you take care of the preventive maintenance, you're less likely to get really sick, need lots of prescriptions, have to go to the hospital - you get the idea.

An HMO plan can cost less than a low deductible PPO plan because the insurance company negotiates significant discounts with the healthcare providers in the HMO's network. Your out-of-pocket costs - like copayments - are lower with an HMO than with other types of plans. You have to go to a provider who's in the network, or your care isn't covered.

Also, most HMOs require you to pick a Primary Care Physician, or PCP - an in-network doctor, usually in general or family practice, internal medicine, or pediatrics. Your PCP tends to most of your health needs, refers you to in-network specialists, if necessary, and orders any tests or other treatment you need. So, with an HMO, you get lower costs, but you also have fewer choices. Your PCP coordinates all your healthcare.

Why you may want an HMO

An HMO plan is a good choice for people willing to use certain providers in exchange for lower out-of-pocket costs.

• Out-of-pocket costs are predictable. You're only responsible for copayments, so it's easier to predict your costs and feel secure about unexpected medical expenses.

• You work one-on-one with your doctor. Your personal doctor keeps an eye on your total healthcare picture and is the first person you go to anytime you have a health problem.

• You have less paperwork. Because your PCP is in the plan's network, you don't have to fill out claim forms.

• Your plan provides for more preventive care. HMO plans typically include coverage for preventive care like annual checkups, flu shots, and screenings, however all plans now cover certain preventative care benefits.

HMO out-of-pocket costs

With an HMO, you're responsible for copayments - fixed fees you pay when you see a doctor, have a prescription filled, or are admitted to the hospital. You usually don't have to meet a deductible or pay coinsurance. Other than your copayments, the plan covers 100 percent as long as you see a healthcare provider in the network, because HMOs only cover services from in-network providers.

Preferred Provider Organization (PPO)

Then there's the PPO Plans.  They're the plans you see the most in California. Like an HMO, it's focused first on prevention. It can cost more or less as a rule, than an HMO plan - although it may cost less than a traditional FFS (fee-for-service) or POS (point-of-service) plan.

The premium for a low deductible PPO is generally higher than that of an HMO. The copayments for in-network providers - doctors, hospitals, and pharmacies - may be the same, or they may vary. The big advantage to having a PPO is that it gives you more choice. Most PPOs allow you to see any healthcare provider you want, although you'll be responsible for more of the cost if you go out of network. You don't have to choose a primary care physician (PCP) - you can make your own decisions about whether you need specialized care and you can get it without a referral.

With a PPO, you accept more responsibility for your own care. In exchange for being able to decide for yourself, you also need to find out for yourself whether the healthcare providers you use are in-network. If they're not, you'll pay more, because those providers haven't negotiated the group discounts of in-network providers.

Your insurance company can tell you the best way to confirm a healthcare provider's network status or we can check for you. Many insurance companies nowadays have online directories that are much easier to keep up-to-date than the old paper directories, so you can locate in-network providers with just a few mouse clicks.

And it's not just about what you spend. With a PPO, you also have greater responsibility for knowing what kind and how much care you need. Of course, your primary doctor - the one you see for annual checkups or when you're coming down with something - still monitors your "big picture," but he or she is less likely to tell you when you need to see a specialist. You need to pay attention to your own health, not expect your doctor to take care of everything for you.

So a PPO comes with somewhat more responsibility attached, but it also allows significantly more freedom to choose your own healthcare. With a PPO, your primary doctor becomes more like a partner in maintaining your good health.

Some healthcare plans - often connected to PPOs - have very high deductibles and much lower out-of-pocket costs. These plans, called High Deductible Health Plans, or HDHPs, can be linked to healthcare spending or savings accounts. If you have an HDHP, you can make deposits to a government-approved account by payroll deduction before taxes come out of your paycheck, reducing your taxable income. The money in your spending or savings account is then available to pay your medical expenses while you work toward meeting your deductible.

Why you may want a traditional PPO plan

A PPO plan is a good choice for people willing to have deductibles and generally lower premiums.

• The out-of-pocket limit gives you peace of mind. Every PPO plan limits the amount of money you'll spend within the plan year. If you reach this limit, called the "out-of-pocket maximum," the plan pays 100 percent of additional covered expenses for the remainder of your plan year. You continue to pay copayments.

• You can choose any provider. With a PPO plan, you decide whether you want to use in-network doctors. If you "step outside the network," your copayment, deductible, and coinsurance costs will be higher - sometimes significantly higher. But you'll have access to the information you need to choose what's best for you.

Why you may prefer an HDHP over a traditional PPO

The HDHP is a good choice for people who want a "safety net" for medical emergencies, but who really don't go see a doctor that often.

• Your premium is lower. The higher your deductible, the less you pay just for coverage.

• You still have the reassurance of an out-of-pocket limit. After you meet your deductible, your plan covers 100 percent of in-network expenses. You won't even have copayments for the rest of your plan year, as long as you see in-network providers.

• Deposits to your healthcare spending accounts are pre-tax deductions. While you save to cover expenses that come up before you meet your deductible, you also save on taxes.

PPO out-of-pocket costs

With all PPO plans, your out-of-pocket costs may include:

• Copayment - A fixed fee you pay when you see a doctor, have a prescription filled, or are admitted to the hospital. Copayments are generally lower for services from primary care physicians than specialists.

• Deductible - The amount you pay toward certain medical expenses before your plan starts paying a share of the costs. PPO plans generally have separate deductibles and out-of-pocket limits for in-network and out-of-network providers.

• Coinsurance - The percentage of costs you pay after you've met the deductible. The plan always pays a higher percentage when you use in-network providers.