HMO, PPO, and Managed Care Health Plans
Managed Care Plans are the most common form of health care coverage offered in the United States today. Unlike Indemnity Plans, where participants are free to seek medical attention whenever and wherever they feel necessary, Managed Care Plans are much more restrictive.
One of the reasons that managed care plans have become so popular is because employers are the ones footing the bills for most medical coverage. The cost associated with providing medical benefits to employees is one of an employer's highest expenses. So that they are able to continue offering medical benefits, employers need to select the most affordable health plans available and more often than not, it's the managed care plans that are the least expensive.
Managed Care plans work off the basic premise that health care costs can be better controlled by controlling access to health treatments and services. While this may be true and beneficial to the companies offering these plans, from a patient's perspective, it can be difficult to get approval for health care that goes beyond basic preventative care.
Types of Managed Care Plans
There are three main categories of Managed Care Plans:
- Health Maintenance Organization (HMO)
- Preferred Provider Organization (PPO)
- Point of Service (POS)
HMO Plans (Health Maintenance Organization)
Health maintenance organizations are prepaid health plans. As an HMO member, you pay a monthly premium. In exchange, the HMO provides comprehensive care for you and your family, including doctors' visits, hospital stays, emergency care, surgery, lab tests, x-rays, and therapy.
The HMO arranges for this care either directly in its own group practice and/or through doctors and other health care professionals under contract.
Advantages of HMOs
- Low out-of-pocket costs: HMO members pay a fixed monthly fee, regardless of how much medical care is needed in a given month.
- Focus on wellness and preventative care:HMOs encourage members to seek medical treatment early, before health problems become severe.
- Typically no lifetime maximum payout: Unlike most health insurance plans, HMOs generally do not place a limit on your lifetime benefits.
Usually, your choices of doctors and hospitals are limited to those that have agreements with the HMO to provide care. However, exceptions are made in emergencies or when medically necessary.
There may be a small copayment for each office visit, such as $5 for a doctor's visit or $25 for hospital emergency room treatment. Your total medical costs will likely be lower and more predictable in an HMO than with fee-for-service insurance. Because HMOs receive a fixed fee for your covered medical care, it is in their interest to make sure you get basic health care for problems before they become serious. HMOs typically provide preventive care, such as office visits, immunizations, well-baby checkups, mammograms, and physicals. The range of services covered vary in HMOs, so it is important to compare available plans. Some services, such as outpatient mental health care, often are provided only on a limited basis.
Many people like HMOs because they do not require claim forms for office visits or hospital stays. Instead, members present a card, like a credit card, at the doctor's office or hospital. However, in an HMO you may have to wait longer for an appointment than you would with a fee-for-service plan.
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) who must be consulted before you seek care from another physician or specialist.
- 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.
In some HMOs, doctors are salaried and they all have offices in an HMO building at one or more locations in your community as part of a prepaid group practice. In others, independent groups of doctors contract with the HMO to take care of patients. These are called individual practice associations (IPAs) and they are made up of private physicians in private offices who agree to care for HMO members. You select a doctor from a list of participating physicians that make up the IPA network. If you are thinking of switching into an IPA-type of HMO, ask your doctor if he or she participates in the plan.
In almost all HMOs, you either are assigned or you choose one doctor to serve as your primary care doctor. This doctor monitors your health and provides most of your medical care, referring you to specialists and other health care professionals as needed. You usually cannot see a specialist without a referral from your primary care doctor who is expected to manage the care you receive. This is one way that HMOs can limit your choice.
Before choosing an HMO, it is a good idea to talk to people you know who are enrolled in it. Ask them how they like the services and care given.
Questions to Ask About an HMO
- Are there many doctors to choose from? Do you select from a list of contract physicians or from the available staff of a group practice? Which doctors are accepting new patients? How hard is it to change doctors if you decide you want someone else? How are referrals to specialists handled?
- Is it easy to get appointments? How far in advance must routine visits be scheduled? What arrangements does the HMO have for handling emergency care?
- Does the HMO offer the services I want? What preventive services are provided? Are there limits on medical tests, surgery, mental health care, home care, or other support offered? What if you need a special service not provided by the HMO?
- What is the service area of the HMO? Where are the facilities located in your community that serve HMO members? How convenient to your home and workplace are the doctors, hospitals, and emergency care centers that make up the HMO network? What happens if you or a family member are out of town and need medical treatment?
- What will the HMO plan cost? What is the yearly total for monthly fees? In addition, are there copayments for office visits, emergency care, prescribed drugs, or other services? How much?
PPO Plans (Preferred Provider Organizations)
The preferred provider organization is a combination of traditional fee-for-service and an HMO. Like an HMO, there are a limited number of doctors and hospitals to choose from. When you use those providers (sometimes called "preferred" providers, other times called "network" providers), most of your medical bills are covered.
When you go to doctors in the PPO, you present a card and do not have to fill out forms. Usually there is a small copayment for each visit. For some services, you may have to pay a deductible and coinsurance.
As with an HMO, a PPO requires that you choose a primary care doctor to monitor your health care. Most PPOs cover preventive care. This usually includes visits to the doctor, well-baby care, immunizations, and mammograms.
In a PPO, you can use doctors who are not part of the plan and still receive some coverage. At these times, you will pay a larger portion of the bill yourself (and also fill out the claims forms). Some people like this option because even if their doctor is not a part of the network, it means they don't have to change doctors to join a PPO.
Although PPOs offer more freedom of choice, there are generally more costs involved in this type of managed care plan. These costs can be significant when participants go outside the network.
Advantages of PPOs
- More choices in healthcare providers: 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.
- Lower Out-of-pocket costs: 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.
Questions to Ask About a PPO
- Are there many doctors to choose from? Who are the doctors in the PPO network? Where are they located? Which ones are accepting new patients? How are referrals to specialists handled?
- What hospitals are available through the PPO? Where is the nearest hospital in the PPO network? What arrangements does the PPO have for handling emergency care?
- What services are covered? What preventive services are offered? Are there limits on medical tests, out-of-hospital care, mental health care, prescription drugs, or other services that are important to you?
- What will the PPO plan cost? How much is the premium? Is there a per-visit cost for seeing PPO doctors or other types of copayments for services? What is the difference in cost between using doctors in the PPO network and those outside it? What is the deductible and coinsurance rate for care outside of the PPO? Is there a limit to the maximum you would pay out of pocket?
POS Plans (Point of Service)
A POS or Point of Service managed care plan is somewhat like a hybrid. It offers more freedom of choice like a PPO, and a lower cost like an HMO. 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.