Many people, including healthcare professionals, get various insurance coverage types confused. Choosing the right health insurance coverage can be difficult and individual needs vary around cost, options, coverage, deductibles, and convenience of care.
HMO = Health Maintenance Organization
HMOs usually have lower premiums, but come with a restricted network of doctors and hospitals. Patients choose a PCP (Primary Care Physician) who coordinates, manages, or oversees patient care. These plans usually require the PCP to evaluate conditions before sending patients to specialists through referrals. They do not usually have deductibles (if they do, they are usually lower in comparison) and patients make copayments for office visits, diagnostic tests, and prescriptions. HMOs usually require patients to stay within the network (unless emergency care is needed, which requires the facility to bill as “in-network”).
HMOs may be ideal for patients who:
- Have a primary care physician and other providers who are in the HMO network.
- Do not often need specialty care or referrals.
- Care more about cost than options.
PPO = Preferred Provider Organization
PPOs usually have higher deductibles and premiums, but offer more flexibility. Selection of a PCP is not normally required, and the network of covered providers is usually larger. They also allow patients to see a specialist without a referral and allow both in-network and out-of-network encounters (out-of-network encounters are usually not covered as fully as in-network encounters). Approval may be required for some services that are considered costly, such as a MRI, for example. Not only are premiums typically higher, but deductibles usually also must be met before the health plan begins to pay for care. Once the deductible is met, the health plan begins to cover its portion of the coinsurance. PPOs also have an out-of-pocket maximum (these vary in size) for in-network care, and if this is met or reached, all costs are then covered by the health plan for the rest of that term. For Marketplace plans through Obamacare, the Affordable Care Act (ACA), the maximum out-of-pocket limits for 2017 are $7,150 for an individual plan, and $14,300 for a family plan.
PPOs may be ideal for patients who:
- Desire flexibility for in network and out of network options.
- Do not want to have to get referrals.
- Would rather pay a higher premium and less for the actual health care encounters.
EPO = Exclusive Provider Organization
EPOs are managed care plans that require patients to use physicians and hospitals in the plan’s network. They are similar to PPOs in that the patient does not need to choose a PCP or need a referral, but coverage is limited to those providers in-network. The networks are usually limited like the networks of HMOs and care outside of the network is not covered unless it is for emergency care. Approval may be required for some services that are considered costly, such as a MRI, for example.
EPOs may be ideal for patients who:
- Desire the options of a PPO and don’t anticipate a need for referrals outside of the network.
- Do not mind a limited network of physicians and facilities like those in HMOs.
- Like the idea of an HMO, but don’t necessarily desire to have a PCP.
POS = Point of Service
POS plans are less common than PPOs and HMOs and are considered a hybrid of those two types. Actually, “point of service” means that the patient can choose whether to use HMO or PPO services for each healthcare encounter. They usually have similar rules to HMO’s such as choosing an in-network PCP, but they can also see an out-of-network provider for a higher fee.
POS Plans may be ideal for patients who:
- Have a PCP in the POS plan and like having a PCP to oversee/coordinate care.
- Desire the options of going out of network like a PPO.
- Do not mind paying higher fees for out of network encounters.
HDHP = High Deductible Health Plan
HDHPs are also sometimes referred to as CDHP (Consumer Driven Health Plan). They can vary greatly from plan to plan in the sense that one type might be very much like an HMO, while another more like a PPO. What makes this option truly different is the size of the deductible and the HSA (Health Savings Account) that comes with the plan. Deductibles are usually higher in these plans and are defined by the government as any plan with a deductible of at least $1,300 for an individual plan, and $2,600 for a family plan. That amount must be paid by the patient before the health plan contributes to the costs of care. HDHPs usually have an associated HSA that allows patients to save money (pre-tax) to pay for qualified medical expenses. The health plan will begin to pay its portion of coinsurance once a deductible is reached, and all costs are covered once the out-of-pocket maximum has been reached. These plans usually have lower premiums and are usually best suited for young, healthy individual patients and are usually more costly for older adults and young families.
HDHPs may be ideal for patients who:
- Do not have many health care costs and do not anticipate many costs in the year.
- Would rather pay less up front costs and more out of pocket when care is needed.
- Do not have children or a spouse on the plan who is expected to have many costs in the year.
*Average Deductible from Kaiser Family Foundation, 2016 Employer Health Benefits Survey. This survey did not include the average deductible amount for EPOs.
Additional Insurance Terms:
Premium: The amount of money paid for insurance. Premiums are usually paid in monthly or quarterly installments.
Deductible: The amount of money the patient pays for eligible medical expenses in a calendar year. After the deductible is met, the patients pays nothing or shares the remaining costs with the health plan up to the out-of-pocket maximum. Deductibles can vary depending on whether medical services are obtained in or out-of-network. In some cases, out-of-network services are more expensive and fall under a higher deductible.
Copayment: (also known as Co-Pay) The fee a patient pays for a health encounter (such as a physician visit, diagnostic testing, or prescriptions). Copayment fees can also vary based on whether services were in or out-of-network and also by physician specialty type or type of service obtained. Copayments usually range between $10 and $40.
Coinsurance: The cost sharing between the patient and the health plan carrier. The cost sharing can range from 80/20 to 50/50. When coinsurance is 80/20, it means that the health plan carrier covers 80% of annual medical expenses, and the patient pays the remaining 20%. The cost sharing stops when medical expenses reach the out-of-pocket maximum, which is often between $1,000 and $5,000. If the medical expenses in a calendar year exceed the out-of-pocket maximum, then the health plan carrier covers all remaining costs. There are some medical plans with coinsurance of 100%, where all medical expenses are covered by the health plan after the deductible is paid. Coinsurance rates can also vary for in or out-of-network services and is typically higher when going out-of-network.
Out-of-Pocket Maximum: (Also called Out-of-Pocket Limit) The maximum amount of money the patient pays for medical services in a calendar year. Out-of-pocket maximums may or may not include a deductible depending on the health plan’s definition of the term. The maximum amount of money the patient is responsible for can vary for in or out-of-network services.
How Health Plans Usually Work
The illustration below shows the different health care cost sharing between the patient and the health plan. The example plan below has a $1,000 deductible (note that some visits may be fully covered with a $20 copay), an 80/20 coinsurance rate (up to $5,000 where health plan covers 80% and the patient 20%), a $1,000 out-of-pocket maximum (not including deductible), and a $20 copayment. The example below is for health care services that are in network and shows the cost sharing from the patient’s point of view.