Employers typically offer their employees multiple options when it comes to health insurance plans. The most common types of plans offered include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Point-of-Service (POS) and Exclusive Provider Organizations (EPO) plans. These options may also be offered to individuals and families buying their own plans directly from providers. But what are the important differences?
HMOs provide incentives in the form of cheaper monthly premiums by patients receiving all of their medical care from in-network providers. You must select a primary-care physician (PCP) — such as an internal medicine physician, family physician or pediatrician — who will refer you to specialists and manage your overall health care. The only exception may be if a certain treatment is not offered by an in-network specialist.
With HMOs, if you select a provider outside your network, then you will likely have to cover most, if not all of the costs. These plans could also increase the number of visits and copays, as one ailment could result in a trip to your PCP for a preliminary diagnosis and referral to a specialist, followed by visits to that specialist. If you are tight on time and you are proficient at independently researching your condition and specialists, you may want to select a plan that is more flexible in terms of your ability to select which specialists you see. Regardless of your level of expertise, your physician is specifically trained to look at the big picture and has the added benefit of a longer history of monitoring your overall health, as opposed to focusing mainly on individual symptoms as they arise.
PPOs tend to have slightly higher premiums or monthly payments, but provide greater freedom in choosing your health care providers. For emergency room visits and major procedures, you will be required to pay a percentage of the total costs, typically from 10 to 15%, in lieu of a standard copay. While PPOs allow you to select out-of-network providers, you will pay a higher portion of the bill for such providers. However, this is still better than an HMO, where you might have to pay 100% of the cost for going out of your network. Additionally, you do not have to go to your PCP for a referral to a specialist, which saves you both time and stress. Keep in mind that with most PPOs, your annual out-of-pocket costs (besides premiums) will be capped somewhere between $1,500 and $7,500 for individual coverage. This limits your financial exposure in the case of major surgeries, accidents or catastrophic illness.
POS plans draw from the benefits offered by both HMO and PPO plans. Like HMOs, you must select an in-network PCP. If you select a specialist outside of your network, you will be required to cover more (even most, if not all) of the costs, except in cases where your PCP refers you to an out-of-network specialist. This type of plan is ideal for small businesses or frequent travelers who may not always have access to the same set of providers.
The monthly premiums for EPOs are typically lower than HMOs and PPOs, but they do not cover any services provided by out-of-network physicians. The only exception may be partial reimbursements for out-of-network services in emergency situations. EPOs do not require you to get referrals from a PCP, however the pool of in-network specialists you have to choose from may be even more restrictive than an HMO.
If you can predict some of your major medical needs for the following year, such as a planned operation or procedure, or if you are planning on having a baby, then selecting an HMO or an EPO plan will allow you to minimize out-of-pocket expenses because of the set copays for hospital visits, as opposed to PPOs, which hold patients accountable for a percentage of the costs. Just be sure to check that your individual performing your procedure is in-network prior to selecting your plan or scheduling your surgery.
If you have younger children, emergency room costs may play a prominent role in your plan selection. If your child becomes injured on the weekend or runs a high fever in the middle of the night — outside of your pediatrician’s regular office hours — you do not want high emergency room or urgent care costs to prevent you from seeking the medical attention your child requires. By selecting an HMO plan, you will have a set copay for these. With PPOs, again you will responsible for the 10 to 15% of the total costs of each visit or procedure until you reach your annual out-of-pocket cap. Because it is difficult to predict how many emergency room visits you will make in a given year, especially with children, or what sorts of tests or procedures might be performed in the case of an emergency, many people are willing to sacrifice choice in providers and opt for an HMO because of the pre-determined copay.
In addition to monthly premiums and the freedom to choose your providers, two more issues come into play when selecting your plan: deductibles and paperwork. By selecting a high-deductible health plan (HDHP) with a higher annual deductible, you can reduce your monthly premiums. As a safety net, this strategy is best coupled with pre-tax Health Savings Accounts (HSAs), from which individuals can withdraw funds to cover medical expenses. Some medical-related expenses that qualify for payment through an HSA may not be covered through other types of coverage. Some examples include non-cosmetic services like dental work, prescription medications and eyeglasses.
With HSAs, you can roll over and accumulate any unused funds for the following year. HSA funds can only be used to pay for premiums if you are collecting unemployment, or if you have COBRA through a former employer. HSAs, regardless of whether the employer or the individual deposits the funds, belong to the individual, similar to an IRA. This approach is ideal for health-conscious individuals who do not anticipate any major medical expenses. Finally, how claims are filed may factor into your decision. You do not file any claims as long as you stay within your network. For PPOs, on the other hand, you may have to pay your specialist in full, file a claim and wait to get a portion of the bill reimbursed.
When open enrollment comes around, take the time to reflect how the overall state of your health has changed from the previous year, and do your best to anticipate your medical needs or big life changes for the following year. Do not automatically go with the same plan as the previous year. Consider what level of control you want in selecting your medical professionals, the treatments you will require and finally, conduct some worst-case scenario projections for yourself and your family members to make sure you are adequately prepared to meet all of your medical needs.