Definitions of Health Insurance TermsPPO Plans (Preferred Provider Plans)
PPO plans are preferred provider plans. Health insurance companies contract a network of doctors and hospitals that are "preferred" by the company. These network doctors and hospitals charge a contracted fee for their services and when you choose to see one of these "preferred providers," the amount you pay out of your pocket is usually quite low. There is typically a small co-payment (a fee per visit or service), which may be $15 or $20. It is important to keep in mind that since the insurance companies keep prices lower by contracting specific doctors and hospitals, there is higher charge for going out of the healthcare provider's network. However, the PPO is a more flexible arrangement than many other plans because the plan will pay some of the costs if you choose to visit a doctor, specialist, or clinic outside the network. For example, if you want to see a world renowned specialist at the John Hopkins Clinic, your PPO plan would reimburse you for at least some of the cost.
HMO Plans (Health Maintenance Organization)
A health maintenance organization (HMO) provides “managed care” in return for a monthly or quarterly premium. You pay a fee, the amount depending on the specifics of your coverage, and are offered a range of health benefits that cover the entire spectrum from preventive care and education to physician care, surgery and hospitalization. An HMO is a one-stop shop for all your healthcare needs. Your healthcare is “managed” by your primary care physician, usually a general practitioner.
Typically, you must receive a referral from your physician before visiting a specialist outside the provider network. With rare exceptions, such as when you are away traveling, you are limited to seeking care completely within the network of providers, doctors, hospitals and labs with whom your HMO has negotiated a fee schedule. Since contracting discounts from a network of providers is one of the primary ways a HMO maintains cost effectiveness, the plan only works when you stay within the network. In addition to your premium, an HMO generally charges a co-payment (a way of sharing per visit costs between the consumer and the plan) of, for example, $10 or $20 for certain services or prescriptions. One of the unique features of an HMO is that they typically deliver care directly to patients. Patients visit an HMO’s medical facility to see the physicians. Most HMOs own their own hospitals and clinics and directly hire physicians who work only for them. A quintessential example is the Kaiser Permanente System.
While an HMO is more restrictive than other plans, it can be a convenient and cost effective solution for an insurance consumer that does not have ties to a doctor or medical facility outside of the HMOs network. If the organization is well run, doctor visits and healthcare can be simple, hassle-free and reliable. If the need arises for you to see a specialist, your doctor will handle the research for you, all you will need to do is show up for your scheduled appointment.
POS (Point of Service Plans)
Point of Service (POS) plans have similarities to both PPO and HMO plans. As with Preferred Provider (PPO) plans, you are directed toward a network of contracted doctors, hospitals and clinics for your healthcare, but you can pay a larger out-of-pocket fee to visit an out-of-network provider. In line with the managed care policies of an HMO, your healthcare is administered according to a healthcare professional. With a Point of Service plan your primary doctor oversees your medical care and refers you to contracted specialists when the need arises. Akin to the philosophy of an HMO, POS plans promote health and wellness through prevention and education, in addition to treatment.
The upside to a Point of Service plan is the freedom to go out on your own and chose your own providers, even specialists, outside the network. You are never limited to medical providers your primary care physician refers. However, be aware, the dollar amount the plan will pay decreases when you go outside the network. You will pay approximately $600 a year for the privilege of being allowed to self-refer to out-of-plan practitioners, and your out-of-pocket contribution will be greater. It is wise to consider if it is worth it to you, as a consumer, to pay a higher monthly payment for the freedom to access specialists, physicians, and clinics of your choice. If you are relatively healthy and do not have a special relationship to a specific physician, then you might consider a managed care program that will charge you less to exercise less freedom in choosing a healthcare provider. If the freedom to self-refer to any healthcare practitioner or hospital you want is important to you, a POS plan may be your ideal fit.