One reason choosing healthcare insurance can be so confounding is that the healthcare market is constantly changing and the coverage plans offered by insurers are hard to categorize.
In other words, the lines between HMOs, PPOs, POSs and other types of coverage are often unclear and at times "blends" of these traditional types are available as well.
Understanding plan types is vital to evaluating the best options available to you.
HMO (Health Maintenance Organization)
HMOs typically require patients to select a “primary care physician” (PCP) who can refer patients to specialists, also within the HMO’s network. HMOs often won’t pay for medical care that wasn’t referred by the primary care physician (some exceptions include emergency services or preventive gynecological exams). They may also require prior authorization before elective hospitalizations or require referrals from primary care physicians before seeing certain specialists. In addition to the monthly premium, participants usually need to pay a small fee at the time of service called a copay.
A POS is a type of managed care plan that is a hybrid of HMO and PPO plans. Like an HMO, participants designate an in-network physician to be their primary care provider. But like a PPO, patients may go outside of the provider network for health care services. When patients venture out of the network, they’ll have to pay most of the cost, unless the primary care provider has made a referral to the out-of-network provider, in which case, the medical plan will pick up the tab.
PPO (Preferred Provider Organization)
PPOs generally offer a wider choice of providers than HMOs. Premiums may be similar to or slightly higher than HMOs, and out-of-pocket costs are generally higher and more complicated than those for HMOs.
PPOs allow participants to venture out of the provider network at their discretion and do not require a referral from a primary care physician. However, straying from the PPO network means that participants may pay a greater share of the costs. For example, a PPO available to small businesses may reimburse 60% of out-of-network costs and 80% of in-network costs (with the employee responsible for the remaining 40% or 20%).
Depending on the scope of coverage, health care plans often pay for part or all of the cost of the following types of services:
Standard services such as doctor’s office visits; surgery; hospital care; physical therapy; mental health and substance abuse treatment.
Preventive and diagnostic services such as physical exams; immunizations; annual gynecological (well-woman) exams; cancer screening (Pap tests, mammograms, prostate exams, and so on); x-rays; laboratory tests; second opinions for surgery.
Wellness-related services such as programs to help you stop smoking; weight-loss programs; stress-control courses; discounts at fitness facilities; health-related information via the Internet.
Choice of Providers
Health plans can vary a great deal in exactly which providers, hospitals and medical groups are available to plan participants. Decide early on how important this issue is to you.
When considering various plans, an important issue to consider is how important a choice of providers is to you and or your employees. Individuals and employees who have established relationships with doctors may not want to be forced to choose a new one. This is particularly true for older people and families.
In many health plans, patients must pay a portion of the services they receive. This payment is called “co-insurance” and is usually a small percentage of the service cost after the plan pays benefits. If the plan pays 70 percent of the cost, the patient pays 30 percent of the cost. If the plan pays 90 percent, the patient pays 10 percent, and so forth. Co-insurance is common for PPO products and less common in HMOs.
A copayment or “copay” as it is sometimes called, is a flat fee that the patient pays at the time of service. After the patient pays the fee, the plan usually pays 100 percent of the balance on eligible services. Eligible services are those services that the plan includes in its coverage. The fee usually ranges between $10 and $40. Copayments are common in HMO products and are often characteristic of PPO plans as well.
The deductible is the amount a patient pays before the plan pays anything. Deductibles generally apply per person per calendar year. Under PPOs with co-insurance, deductibles usually apply to all services, including laboratory tests, hospital stays and doctor’s office visits. Some popular plans, however, waive the deductible for office visits. Then for most other covered medical expenses for the rest of the year, the plan pays its share and patients pay their share. Most HMOs don’t have general deductibles, but may have a service-specific deductible for inpatient hospitalization or for brand-name prescription drugs.
Generally speaking, the higher the deductible, the lower the premium. Some plans with particularly high deductibles—say, $2,000 and up—are known as “high-deductible” plans. While these plans may have significantly lower premiums, participants are exposed to high out-of-pocket costs.
Once out-of-pocket expenses per individual reach a defined limit in a single calendar year, the plan will pay 100 percent of eligible charges for the rest of the calendar year. The definition of out-of-pocket maximum will differ depending on your insurance carrier. Some carriers exclude specific costs (for example, fertility treatments or prescription drugs) or increase the maximum for care provided by out-of-network providers. Out-of-pocket cap levels typically are in the range of $1,000 to $5,000 per person. To protect your employees from high costs, choose as low an out-of-pocket maximum as you can afford.
Individual Health Insurance vs. Group Health Insurance
Individual Health Insurance is a type of health policy an individual purchases for himself and/or his family. Individual health insurance policies are often purchased with the guidance of an insurance agent to help navigate plan choices and premium costs.
Group Health Insurance is a type of health policy purchased by an employer and offered to eligible employees of the company, and to eligible dependents of employees. Group plans tend to be less expensive and offer broader coverage than individual plans.