A Health Maintenance or a Preferred Provider Organization?
WHICH IS BEST FOR YOU?
We begin with a brief explanation of the differences between these two types of health insurance plans, HMO and PPO, and then discuss some reasons for choosing one or the other. Each has its advantages and disadvantages, but ONLY YOU can decide which, on balance, is better for you and your dependents.
Of course, there are other plan types, EPO (Exclusive Plan Organization) or POS (Point Of Service), which are variations on the previous two.
About half the US population benefits from a group (employer-sponsored) health insurance plan, and most of these are HMO or PPO plans, So let’s start there.
The names reveal the significant difference between the two plan types. HM=Health management; PP= Preferred Provider, and both are organizations (commonly called ‘networks)
With an HMO plan, healthcare is delivered through a contracted network of doctors, hospitals, and other providers. The insurer pays an agreed rate for their services. Your usual point of contact will be your local, family, doctor’s office (your primary care doctor). Your primary care doctor will be responsible for managing your day-to-day healthcare. If indicated, a primary care doctor may refer you to an ‘in network’ specialist. If the network cannot deliver a covered service, your primary care doctor may refer you to an outside specialist.
In the event of needing emergency care, plan members may attend the nearest emergency room.
Some HMOs operate in limited geographic areas and, you may not get coverage if you live outside their region.
A PPO plan also operates through a contracted network of health care providers. These plans allow you to approach any provider in the network, including specialists, without the intervention of a primary care physician. You may even visit providers not contracted by your insurer.
PPO plans offer greater flexibility in finding providers, especially if you travel widely. They put your health care management in your own hands. This flexibility comes at a cost. Your monthly premium will probably be higher than for an HMO. Generally, you will pay the provider directly and then claim your expenses from your insurers. Your insurer will reimburse you at the network rate, less any co-pays or coinsurance.
Now let us look at what these two plan types have in common.
Of course, every insurance plan has its premium, the monthly amount you pay to access a health care provider network. With an ACA-compliant plan, you will have ‘free’ access to essential benefits, including a wide range of screening and preventive treatment for you and your dependents.
Your insurer will have negotiated a fixed price for (in-network) consultations, treatment, and medication. You will, however, have to contribute each time you visit a service provider or use prescribed medication. Initially, you will pay 100% of each bill up to a maximum total (your deductible). When you have met your ‘deductible,’ you will need to pay only a share of each bill. Your share may be a percentage (coinsurance) or a fixed sum (co-payment), e.g., $10 up to a limit known as your maximum out-of-pocket expense (OOP). This limit, the aggregate of your deductible, coinsurance, and co-pays, is set annually under the AFA. When you have reached your OOP, your insurer will pay in full for the services covered by your plan.
For the plan year 2021, the maximum OOP is $8,550 for an individual and $17,100 for a family. These limits traditionally rise annually. For the plan year 2022, the Administration intends to raise these limits to $8,700 and $17,400, respectively.
You may ask what charges contribute to my OOP. It is simpler to list items that do not contribute’.
- Your monthly premiums
These attract premium tax relief
- The expense of any service or medication not covered by your plan
- Services delivered by providers, not in your network
Now we turn to “choice.”
The first thing to remember is that the plan you choose does not affect the quality of the care you receive.
There are thousands of plans to choose from, each designed to meet the needs of different groups or individuals.
There are two primary considerations – the total cost of healthcare and the level of service you expect to need.
You cannot predict the precise amount of your expected medical expense for the coming year, but your best guess will be based on your experience this year and your expectations for the future. You will need to consider your usual expenditure on visits to your doctor and other providers and consider how they might change in your next plan period. Perhaps you had an event(s) that will not recur, an ER visit maybe, or an extended need for an expensive prescription drug. You may be anticipating some elective surgery, a hip or knee replacement, for example.
Here are some of your choices. You can opt for a low premium plan ( often described as ‘cheap’), implying a higher ‘deductible.’ You will pay “list price” for a more significant part of your outgoings. Alternatively, a higher premium plan may well come with a lower ‘deductible,’ and your insurer will accept a higher proportion of the cost of your medical services and prescription drug charges. You will get more value from your OOP.
Just as necessary is the flexibility of service available to you, you may not need healthcare outside your local area, and you may not need specialist consultancy. You may not need branded medication.
Alternatively, you may need coverage beyond the limits of your local network, your preferred doctor’s office is not on in the insurer’s network or, you may need to use a local provider who is not in your network.
Only you can choose the plan type that suits you best, but choosing between providers (there are over 500 health insurance companies) is a complicated business. Make a list of all the providers you use or may use in the future (doctors, physical therapists, hospitals, and pharmacies).
You should make sure they are on your chosen plan. It will cost you nothing extra to consult a qualified, experienced health insurance advisor – their advice may save you hundreds, even thousands of dollars.