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Getting the Insurance That’s Right For You
HMO, PPO or a Traditional Plan? The Pros and Cons Can Make a Difference



November 25, 2003


By Ken McGrath - eCureMe Staff Writer
Physician Reviewed - November 21, 2003



Picking out health insurance is like picking out clothing. You need to know two things before you start - how the clothes are sized and what your measurements are. Only you can say for sure what your fit is: whether you’re looking to cover just yourself or your family, whether you would rather pay more or get less. But the vital information on the size and shape of the most popular types of plans on the market today - traditional, HMO and PPO -is something you can’t be without.



Traditional Insurance

In today’s insurance marketplace, traditional health insurance, also known as Indemnity Plan insurance or a Fee-for-Service arrangement isn’t as prevalent as it once was; trends towards managed care - a buzzword we’ll get to later, have redefined how healthcare is delivered. However, many employers still offer it and it’s still widely available for purchase by small businesses and individuals.

Fee-for-Service based plans work on a fairly simple model. Medical fees incurred by the insured patient are shared between them and their insurance plan in a pre-arranged ratio. For example, if you’re covered by a Fee-for-Service plan and are billed $100 for a check-up you (or your doctor / hospital) will submit a claim for reimbursement to your plan and they’ll pay $80 (though there are variations, most traditional plans reimburse about 80% of the cost for agreed upon services). The rest is up to you.

If you have an indemnity plan, you have a good degree of control over choices about your treatment and provider. You can see any doctor you wish, and don’t need the insurance company’s permission before you see a specialist.

Freedom, however, comes at a cost. Even 20% of your medical costs can add up quickly. In addition, premiums for traditional insurance - the monthly or quarterly amount the plan bills you - tend to be higher than those for other options and so do deductibles (the amount a plan requires you to pay before its coverage will kick in).

A traditional plan is the way to go if it’s important that you continue to see a doctor you’ve established a relationship with. It’s also advantageous if you’re in your 20s and 30s, in good health and not in need of all that much care. The fewer services you receive, the less you pay (though the coverage is still there if you need it). The premiums may be high, but in the process of buying a policy, you can often bargain lower premium rates in return for agreeing to pay a higher deductible (a minimal cost if you receive minimal care).



HMOs

HMOs, or Health Maintenance Organizations, operate in a fundamentally different way than Fee-for-Service plans - they’re pre-paid. Instead of paying a percentage of the costs of each health service they receive, HMO members pay for their care ahead of time, in their premium cost - and then receive services for a relatively small, pre-set payment (such as $10 for a check-up). What’s more, their premiums are comparatively low. There are drawbacks though.

It all comes back to that buzzword - managed care - the method by which HMOs keep their costs relatively low. While Fee-for-Service plans are relatively hands off, allowing patients to choose their own doctors and services, HMOs manage the healthcare of their members. Patients must go to a physician who works for or has a contract with the HMO. Though there are many to choose from, once you pick a primary care physician from the HMO’s roster, that physician controls your care. Most diagnostic tests, procedures and surgeries must be pre-approved, and are often denied. Any unauthorized or outside care you get as an HMO member is at your own expense.

Recently many HMOs have developed more flexible strategies for their members, known as Point-of-Service (POS) plans. HMO enrollees who select POS plans are encouraged to receive their care from the HMO network, but are partially covered for services they receive outside the organization’s purview.

The priorities of an HMO will be a better fit for you if you’re willing to trust the HMO’s management of your health in exchange for lower cost care. If you’re in generally good health - and especially if you’re looking to insure family and children (a potentially expensive proposition) - HMOs can provide peace of mind.



PPOs and Compromise

Want it all? Preferred Provider Organizations (or PPOs) are a hybrid of traditional insurance coverage and HMO managed care. The defining feature of PPOs is that there are two tiers of coverage. Like HMOs, PPOs are pre-paid and maintain networks of care providers. Members are encouraged to receive their care from the PPO’s network, however services provided by outside doctors are covered as well - at the cost of higher co-payments and deductibles.

The structure of PPOs is similar to that of POS plans; both offer limited coverage for non-network services in the context of traditional HMO managed care. The primary difference is that with a POS plan, member care is still directed by their HMO primary care physician. With PPOs, primary care physicians play less of a role.

With cost, PPOs are in the middle again; they’re generally more expensive than HMOs, but less expensive than Fee-for-Service plans.



Buying Smart

Finding the right plan is no easy task - and it’s made more complicated depending on whether you’re choosing from a plan offered by an employer or buying into one on your own. If your employer offers more than one type of plan, you’ll want to weigh each one - and don’t be afraid to discuss your options with your HR rep or benefits manager.

Purchasing a policy outside of a workplace setting can be even more of a chore. Shopping around is the first order of business - even for the same policy, premiums can vary up to 50% depending on where you buy from. Finding an insurance broker to work through the process with is important as well. The National Association of Health Underwriters (on the web at www.nahu.org ) can help you find a member agent in your area.

Unfortunately, no matter which agent you go to, individually purchased health plans are always going to be more expensive than group plans. Though even if your employer doesn’t offer insurance, if you’re self-employed or in-between jobs you can still find group coverage. Many local chambers of commerce, alumni associations, professional organizations and unions offer plans - do the research and find out which ones are available to you.



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