HMOs, PPOs and POS – which do you need?

Essentially, there are three types of medical insurance that you can choose from. Each has its own advantages and disadvantages depending on your case. This was the setup until 2003, when a fourth option was introduced with the passage of the Medicare Modernization Act. This will be discussed separately on the next part of this e-book. The first three types are the following:

1. Health Maintenance Organization (HMO)
   
2. Preferred Provider Organization (PPO)
   
3. Point of Service Plan (POS)
   

A Health Maintenance Organization is a form of health care coverage in the United States that is delivered through hospitals, doctors, and other health care providers with which the HMO has a contract. The HMO health insurance covers only care rendered by doctors and other medical professionals with whom it has an agreement. These doctors and medical professionals agree to treat patients in accordance with the HMO's guidelines and restrictions. When you seek medical consult or undergo a medical procedure under an HMO plan, make sure that your health care professional is within your HMO's network. Otherwise, you will pay for the full cost of the treatment, which may amount to thousands of dollars.

Advantages of HMOs

• Low out-of-pocket costs
  HMO members pay a fixed monthly fee regardless of the cost of medical care. This is perfect for individuals with a stable monthly income. This is in contrast to most types of insurance where you always pay a certain percentage of the bill.
  
• Wellness and preventive care
  HMOs encourage members to get regular check-ups to address health problems before they become severe. Majority of HMOs offer health education classes and even health club memberships at a discount. If you have a generally fit and healthy lifestyle, and do not have any history of acute illnesses, this is something you should consider.
  
• Typically no lifetime maximum payout
  Generally, HMOs do not have lifetime maximums. You don't have to worry about maxing out your insurance coverage if you make frequent visits to your doctor. As long as you are a paying member, your HMO will continue to support your treatment.

Disadvantages of HMOs

• Tedious process to get specialized care
  If you are under an HMO plan, a primary care physician (PCP) provides you with general medical care. Before you can seek help from a specialist for a particular illness, you need your PCP's referral. This may cause a delay in getting appropriate treatment. You may also have to wait longer because of the limited number of in-network specialists and the sheer volume of people opting for HMOs.
  
• Absent coverage from non-HMO providers
  Except for emergencies, your HMO will not pay for care provided by a non-HMO physician.
  

A Preferred Provider Organization is also a managed care organization of medical doctors, hospitals, and other health care providers who have an agreement with an insurer or a third party administrator. The insurer or third party administrator agrees to provide health care at a reduced rate to the clients. The insurer or third party administrator negotiates with medical doctors, hospitals, and other health care providers for a substantial discount. This agreement is mutually beneficial to both parties: as a patient, you save money while your medical doctors, hospitals and health care providers see an increase in clients. With higher coinsurance, PPO plans allow for out-of-network treatments.

Advantages of PPOs

• Free choice of health care provider
  The main distinguishing point of PPO is that you are not limited to doctors in your network, even though there is a strong financial incentive to do so. However, if you seek care from an in-network physician, up to 90 percent of your bill may be eligible for reimbursement. If you obtain care from an out-of-network physician, your reimbursement may only be less than 60 percent.
  
• Generally flat out-of-pocket rates
  Typically, out-of-pocket costs are fixed at around $1,200 for individuals and $2,100 for families. For out-of-network providers, the costs are capped at $2,000 for individuals and $3,500 for families.
  
• Reduced waiting time for specialized care
  In contrast to HMOs, there are usually fewer people who subscribe to PPOs. This translates to a shorter waiting time if you need specialized care.

Disadvantages of PPOs

• More paperwork, longer reimbursement time
  Because PPOs have wider coverage, filling out the necessary paperwork to obtain reimbursements for your treatment is more time-consuming. Not only that, the reimbursement may take longer to arrive resulting in unnecessary out-of-pocket expenses.
  
• More expensive
  In contrast to HMOs, PPOs may require a larger co-payment amount and a higher deductible. And, if your long-time family doctor is outside of the PPO network and you decide to continue seeing him or her, the costs are bound to be higher as well.
  

A Point of Service plan is a cross between an HMO and a PPO. POS allows members to choose to receive services from a participating or a non-participating network provider. If you choose to venture out of the network, you usually pay for most of the cost. If your primary care physician has made a referral to use an out-of-network provider, then your medical plan will absorb the cost. POS is seen as a product more than as an organization.

Advantages of POS plans

• Maximum freedom of choice
  Since it combines the best traits of HMOs and PPOs, you have more choices in terms of the health care you and your family will receive.
  
• Minimal co-payment
  Similar with HMO coverage, you pay only a nominal amount for in-network care. For example, your co-pay is $10 for every treatment. However, in contrast to HMO coverage, you still have the option of seeking care outside your network with minimal difference in coverage.
  
• No deductible and minimal out-of-pocket costs for in-network care
  There is usually no deductible associated with POS plans as long as you stay within the POS network of physicians. In addition, the average yearly limit for out-of-pocket costs is $2,400 for individuals and $4,000 for families.

Disadvantages of POS plans

• Considerable co-payment and deductible for out-of-network care
  Similar to PPOs, there is a strong financial incentive for policy holders who opt to get their
  treatment in a POS-affiliated doctor or facility. For example, a consultation with your physician can cost as low as $10 per in-network visit and as much as 40 percent of the bill for non-network doctors. Also, POS plans generally have a specified deductible before your coverage takes over when you seek care from non-network facilities. Hence, an individual has to pay an average of $300 per year and $600 for families on top of the co-payment.
  
• Difficult access to specialized care
  As with HMOs, you also need your PCP's referral before you see a specialist. This may lead to delays in treatment.
  

Here are the most important factors to consider when selecting the health plan that best suites you and your family:

1. Is your and your family’s long-time doctor part of the network? If not, how important is it to
   continue seeing him or her?
   
2. How important is the ability to move from one specialist to another?
   
3. How much are you willing to pay for deductibles, out-of-pocket expenses, and co-payments?
   
4. Just how healthy are you? This is the ultimate question that deserves an honest answer. If you are generally healthy and rarely visit the doctor, you may do well with a high deductible, high outof- pocket and high co-payment plan with a low monthly premium. For you, health insurance is nothing more than a safety rope in case of an emergency. If you require frequent visit to the doctor’s office, paying a higher monthly premium may be the best alternative to ensure you get a smaller bill after each visit.

An honest assessment of your and your family’s health insurance needs will save you much time and money in the long run. So, whether you plan to do it yourself or consult a health insurance expert for assistance, it pays to be thorough.