What Are The Differences Between The Major Group Health Plans?

HMO, PPO, Or POS? How To Determine Which Plan Is Right For You.

Are you faced with making a decision about what group health plan to select from your employer?  You may have a choice of selecting any of the three managed care plans- an HMO, PPO, or POS.  While all of these plans provide comprehensive medical care coverage, each there are differentiating factors in each of these plans as well.  Before you make a decision on your health care plan, you’ll want to be acquainted with the offerings of each one.

The plan that you elect should be based on your individual needs, health profiles and financial considerations. 

Health Maintenance Organizations (HMOs)

A Health Management Organization (HMO) is a system that provides comprehensive medical care on a prepaid basis to volunteer enrollees in a specified geographic area. HMOs emphasize preventative care and healthy lifestyles.

Choice of Professional Providers

The HMO offers coverage through salaried physicians and staff and/or contracted physicians, hospitals and other medical professionals. Members (patients) are required to obtain care from providers who are affiliated with the HMO. Many HMOs operate in a relatively limited geographic area, such as a metropolitan area. Should you need treatment outside of the HMO's specified location area, it would be provided on an emergency basis only.

Out-of-Pocket Costs

HMOs offer care for a flat monthly rate typically without deductibles or coinsurance.

In other types of plans, a monthly premium is paid, but all providers are paid for as services are provided. The HMO pays the providers directly and, in some cases, the providers may collect a small copayment for office visits.

Cost Control

An HMO emphasizes preventative care and physicians have no incentives to prescribe "excessive" tests or treatments.

In some cases, physicians and other medical professionals may receive bonuses if an HMO facility operates on a cost-efficient basis. There has also been an emphasis to reduce costs by performing certain procedures on an outpatient basis vs. admitting the patient to a hospital.

Gatekeepers

Historically, HMOs have assigned each member a "gatekeeper," who is typically a primary care physician or possibly a staff member. More recently, some HMOs allow members to contact network specialists directly. This gatekeeper coordinates the care of the insured and decides when and if the insured should visit a specialist, be admitted to a hospital, etc.

PPACA requires that the subscriber is allowed to select their gatekeeper.

Preventative Care

HMOs emphasize preventative care that typically includes full coverage for immunizations and routine physicals.

Claims Process

All plan providers deal directly with the HMO for payment when they perform contracted services. In many situations, the HMO employs the provider so no claims procedure is necessary. HMOs pay outsourced providers in a variety of negotiated methods.

Preferred Provider Organizations (PPOs)

Preferred provider organizations are similar to a traditional major medical plan except that a PPO contracts with a wide range of medical care "preferred providers" to obtain lower costs.

The providers are typically paid on a fee-for-service basis. Each state regulates the PPOs and insurance companies own most PPOs.

Choice of Professional Providers

A PPO's benefit structure is very similar to a traditional major medical plan. There is a network of preferred providers of physicians, hospitals, etc., but the insureds have the option of going outside the network to receive care. However, if the insured goes outside the network, the insured should expect higher out-of-pocket expenses.

Precertification Requirements

A PPO will often require approval from the PPO prior to hospitalization treatment, outpatient procedures, etc.

Out-of-Pocket Costs

The insured will again pay a fixed monthly premium as a member of the PPO. In addition, copayments, coinsurance, and deductibles are the norm.

If the insured goes to a provider outside of the network, the coinsurance and possibly co-pays and deductibles will be higher than for treatment within the approved list of healthcare providers.

Preventative Care

In recent years, PPOs have been increasing preventative care services, but they are not generally as comprehensive as the HMO plans.

Claims Process

If network providers provide services, the providers will file claims with the PPO. If providers

are out-of-network, the insured may be responsible for filing the claim, although the provider may obtain authorization from the insured to file the claim directly.

Point of Service Plans (POS)

A Point-of-Service Plan (POS) is a hybrid of an HMO and a PPO. The most common type of POS is an "open-ended HMO," which allows HMO members to go outside the HMO network and be subject to a higher coinsurance percentage. The less common POS is a "gatekeeper PPO," which operates like a PPO, including the use of non-network providers by members, but a primary care physician serves as a gatekeeper.

Choice of Professional Providers

In either type of POS plan, the insureds have the option of going outside the network to receive care. However, if the insured goes outside the network, the insured should expect higher out-of-pocket expenses. A gatekeeper may restrict access to specialists outside of the plan.

Precertification Requirements

A POS plan will often require approval from the PPO prior to hospitalization treatment, outpatient procedures, etc.

Cost to the Insured

As a combination of HMOs and PPOs, POS providers also charge a monthly premium to their members, as well as small copayments when visiting network physicians. Deductibles may apply, depending on the specific plan. Coinsurance could apply for out-of-network providers.

Preventative Care

It is likely that the POS will include some preventative care services, but will vary by type of POS plan.

Claims Process

If network providers provide services, the providers will file claims with the PPO. If providers are out-of-network, the insured may be responsible for filing the claim, although the provider may obtain authorization from the insured to file the claim directly.

COBRA

While COBRA doesn’t fit into the managed health care plans, for those people who experience a “qualifying event,” COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985, will allow employees and specified dependents the option of continuing the same group medical expense insurance, without proof of insurability, for up to 36 months. 

Depending upon the qualifying event, coverage can continue from 18-36 months.  Such qualifying events are:

  • Termination of employment, except for gross misconduct (18 months).
  • Reduction in the employee’s work hours to such an extent that he or she is no longer eligible for coverage.
  • The loss of coverage by a dependent because of the employee’s health, divorce, legal separation, or eligibility for Medicare.
  • The loss of dependency status by children of employs (for example, attainment of the maximum age limit)

If a qualifying event has occurred, the following persons are qualified beneficiaries eligible for continuation of group coverage:

  • A covered employee
  • A covered employee’s spouse
  • A covered employees dependent children
  • Following employers are not required to provide continuation coverage for their employees:
  • Employers with fewer than 20 employees
  • Churches
  • Government employers

An eligible employee may elect continuation coverage under COBRA during the 60 day period immediately after the later of two dates:

  • The date the coverage for the person terminates, or
  • The date the plan administrator notified a qualified beneficiary of the beneficiary’s right to continue coverage

The plan administrator is required to notify all eligible beneficiaries within 14 days of knowledge of qualifying event.  The employer has 30 days to notify the administrator when a qualifying event occurs.  The election period for COBRA starts on the dates of the qualifying event and must last at least 60 days from the time the beneficiary receives notification the administrator.   

Are you contemplating what kind of group medical coverage to elect?  Be sure to do your homework and understand what's included in each plan.   

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Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. 

Wes Moss is the Chief Investment Strategist at the financial planning firms Capital Investment Advisors and Wela. He is also the host of the Money Matters radio show on WSB Radio. In 2014, Moss was named one of America’s top 1,200 financial advisors by Barron’s Magazine. He is the author of several books including his most recent, You Can Retire Sooner Than You Think  - The 5 Money Secrets of the Happiest Retirees, which has been one of Amazon’s best-selling retirement books in 2014.