HMO vs. PPO
Many employers provide health insurance to their employees by enrolling them in a managed care plan. Managed care plans have special arrangements with health care providers and facilities to provide quality services at reduced costs. These providers—which include doctors, hospitals and health care facilities such as laboratories, pharmacies and diagnostic centers—make up a managed care network. Insurance companies set fee limits and patient contributions for specific procedures, and all providers in the network agree to those terms. The top health insurance companies in the US include WellPoint Inc., CIGNA Health Insurance Company, Aetna Group, Humana Group and UnitedHealthcare.
The two main types of managed care plans are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Less common are point-of-service (POS) plans. Under an HMO plan, members are either assigned or allowed to choose a primary care physician (PCP), also known as a gatekeeper, who then becomes responsible for overseeing their basic health care needs. PCPs are usually general practitioners, pediatricians, family doctors or internists. If a specialist or diagnostic service is required, a referral must be obtained from the PCP. The specialist referred will be part of the HMO network. The insurance company may refuse to pay for unauthorized services or treatments. The lone exception is emergency services. HMO plans cover emergency care regardless of whether the provider is part of its network or not. Women also do not need referrals to consult an obstetrician/gynecologist in their network for routine services such as prenatal care, annual check-ups and Pap smears.
PPO plans offer more flexibility. They have arrangements with a network of preferred providers that members can choose from. PPOs do not require a PCP or referral to consult with other providers within or outside the network. However, some specialists may require that patients get a referral from a primary care doctor. Some PPOs also require pre-approval for expensive services, such as MRIs. POS plans combine the characteristics of both HMOs and PPOs; members can choose which type of plan they prefer each time they seek health care.
Members enrolled in an HMO plan do not have to file insurance claims. Neither will they be billed by the healthcare providers. The only payments made by HMO members are a premium and a small copay each time they seek and benefit from health care. Members of a PPO plan do not have to file a claim if they obtain healthcare services from providers within the network. If they receive the services of providers outside the network they may first have to pay the providers in full and then file a claim with the PPO for reimbursement. Members must realize that not all healthcare services outside the network are covered by the PPO plan. The cost of care obtained from providers within the network is also less than the cost of providers outside the network. PPO plan members are charged a premium, deductible, and copay or coinsurance. POS plans can cost 50% less than PPOs but premiums can be 50% higher than for HMOs. Out-of-network copays and deductibles can also be expensive.
The main disadvantages of HMOs include: the large number of restrictions imposed on physicians, access to certain medical facilities, and membership issues such as withholding coverage for people with preexisting conditions. On the hand, the main disadvantages of PPOs are high co-payments and the need to pay a deductible prior to the start of coverage benefits. Aside from the high costs, POS plans can be confusing and many consumers are not aware of what costs they are responsible for.
The choice between an HMO or PPO will depend on one’s budget and how much one can deal with restrictions. Health insurance plans with more restrictions have lower premiums and cost-sharing while plans that offer more freedom of choice are more expensive. The challenge to potential members is finding the plan they are most comfortable with. The bottom line is that those who want to keep costs down and do not mind plan restrictions may opt for an HMO while those who want more choices and are willing to pay a little more can opt for a PPO.