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.
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, 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
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.
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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