HMO, PPO, POS, EPO: What's the Difference?

Understanding Managed Health Care Plans

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Health maintenance organization (HMO), preferred provider organization (PPO), point of service (POS), and exclusive provider organization (EPO) plans are all types of managed health care plans. Because of their similarities, picking one may be confusing.

However, each type of health insurance system offers different options for your medical and health services. The health insurance network or service providers associated with your plan can make a difference for you because it may limit which doctors you can visit, or where you can get service. Understanding how HMO, PPO, POS, or EPO plans differ will help you find the right kind of health care, get your medical claims paid, and avoid any surprises.

Key Takeaways

  • There are four main types of managed health care plans: health maintenance organization (HMO), preferred provider organization (PPO), point of service (POS), and exclusive provider organization (EPO).
  • The main differences between each one are in- vs. out-of-network coverage, whether referrals are required, and costs.
  • After reviewing each type of managed health care plan and how they differ, learn how to choose the right health insurance plan for you and your family.

Types of Managed Health Care Plans

Managed health care plans are health insurance plans that have contracts with health care providers and medical facilities. These contracts allow you to pay a reduced cost for services. The providers and medical facilities are part of a network, and how much your plan covers depends on whether you stay in-network or seek services outside of the network.

Managed health care plans have become popular health insurance choices so you can better manage your health care costs. The type of managed plan you have will dictate how you obtain your medical services.

The main types of managed health care plans include:

Before picking one, compare how restrictive or flexible the networks they use are. Each network determines who you can get medical services from and how your medical claims work.

With changes in medical care and health care, plan sponsors look for ways to reduce costs for themselves and plan members. The tighter the network of providers, the more cost-efficient the plan. Being familiar with the options may help you find affordable health insurance.

Some states also offer Medicaid Managed Care plans.

There are several different types of health insurance or medical insurance plans. The differences may sometimes seem complicated and overwhelming. You may only focus on basic things like the deductible, coinsurance, or trying to understand the terms of the health insurance policy, but there's more to it than that.

Knowing how your managed plan works will let you know how much flexibility your plan allows for medical services if you need to get medical care. If you are trying to decide whether you will insure yourself through an employer-sponsored health plan, or through a family member's or partner's health insurance plan, these details may help you make the decision. If you find that one plan is better than another, you can consider a health insurance waiver. You can also maximize your use of two plans by filing a health insurance claim with dual coverage health insurance.

How Managed Health Care Plans Work

Managed health care plans tend to be more cost-effective than traditional fee-for-service (FFS) or indemnity health insurance plans because they share the medical cost financial risks between members, their insurance plans, and members of the managed care network. Employers who sponsor a managed health insurance plan will pay part of the annual premium. Employees pay the additional cost, which is often less. For example, in 2020, the average annual premium for family coverage was $21,342, with the employer paying $15,754 and the employee paying $5,588 per year.

Managed health care plans differ from FFS or indemnity plans because members usually must select a "primary care physician" from the network of doctors provided by the plan sponsor. Being part of a network will provide plan members access to services from network health service providers at set rates reducing the costs of the plan. 

Pros and Cons of Managed Health Care Plans

Pros
  • Members benefit from reduced rates and guaranteed access to health care services

  • Billing systems help make filing paperwork with in-network providers easier

  • Providers have a steady stream of patients and clients in the network

Cons
  • Less flexible than FFS or indemnity plans

Pros and Cons Explained

When you have a managed health care plan, you have guaranteed access to a network of health care providers. And as long as you visit one of the in-network doctors or specialists, you'll benefit from reduced rates, compared to if you went out-of-network.

When you visit doctors in-network, there's a billing system that helps make the paperwork and claims process easier. This could speed up the process, too.

Physicians and providers also benefit from managed health care plans because they are likely to see more patients who are in the network. That gives them a steady stream of clients and consistent work.

However, compared to indemnity or FFS plans, there is less flexibility because you're required to go to an in-network doctor, or risk paying more (or all of the costs) to see another health care provider. You may also need a referral to visit a specialist.

HMO vs. PPO vs. POS vs. EPO

If you do think you want to sign up for a managed health care insurance plan, it's important to know how each one compares to the others.

Health Maintenance Organization (HMO)

A health maintenance organization (HMO) provides a way to take care of all employees’ or members' health care needs with reduced costs by negotiating with specific doctors, hospitals, and clinics. You must use these specific providers in order to access the reduced fees within the medical insurance plan. In an HMO plan, you have the least flexibility but will likely have the easiest claims experiences since the network takes care of putting in the claims for you.

Preferred Provider Organization (PPO)

A preferred provider organization (PPO) offers reduced costs if you use the network of physicians and providers. You can go to a provider that is out of network, but you'll pay more.

Point of Service (POS)

With a point of service plan (POS), you typically pay less when you utilize providers that are in the network. With a POS plan, you are required to get a referral from your primary care physician before seeing a specialist.

Exclusive Provider Organization (EPO)

With an exclusive provider organization (EPO), you can choose from the providers within the network and do not have to work with a primary care physician. However, any service taken outside of the network may not be covered at all.

Plan Type Network Coverage & Restrictions Referrals Out-of-Pocket Costs 
HMO Must stay in-network, except for emergencies Typically required  Low
PPO  Flexible, but staying in-network will likely cost less  May not be required High
EPO  Must stay in-network, except for emergencies May not be required  Higher than HMO, lower than PPO
POS  Flexible, but staying in-network will likely cost less  Required Higher than HMO and EPO, lower than PPO

Comparing Costs Between HMO, PPO, POS, and EPO Health Care Plans

In 2020, employees with some sort of employer-sponsored health insurance plan paid an average annual premium of $5,588 for family coverage, according to the Kaiser Family Foundation (KFF) 2020 Employer Health Benefits Survey. Single coverage cost an average annual premium of $1,243 per employee (across all plans). The Kaiser Family Foundation also found that 47% of the employees surveyed were enrolled in a PPO plan, 13% in an HMO, and 8% in a POS plan.

Of all the plans, HMOs tend to be the least expensive. According to the Kaiser Family Foundation survey, employees paid an annual premium of $1,212 for an HMO plan with single coverage in 2020.

The survey did not single out costs for EPOs, but in the past, the Kaiser Family Foundation has defined EPO and HMO plans as a single HMO plan. EPOs can also be cost-efficient, as long as you stay in-network. If you get the services outside of the EPO network or member hospitals, you could pay the costs entirely out of pocket.

And even though they were the most popular plan in 2020, according to the Kaiser Family Foundation, PPO plans may be more expensive than other plan types because you'll pay more out-of-pocket costs, such as a higher monthly premium. The survey found that employees paid an average annual premium of $1,335 for single coverage in 2020.

POS plans have the most flexibility, but that also makes them more expensive than HMOs and EPOs. These plans may off the greatest flexibility, but are also likely to be more costly due to the absence of pre-negotiated network member agreements. The Kaiser Family Foundation found that an employee with single coverage in 2020 paid an average annual premium of $1,419.

While you can choose a PPO, HMO, POS, EPO, or another type of plan, you'll also want to consider how much you'll pay in deductible. A high-deductible health plan (HDHP) could save you money in premium payments. The Kaiser Family Foundation survey found HDHPs were the most affordable in 2020, with average annual premiums for single coverage costing $1,061 per employee.

Call your health insurance company before seeing an out-of-network health care provider. This could help prevent your claim from being denied, and make sure you don't pay too much out of pocket.

Which Plan Is Best: HMO, PPO, POS, or EPO?

All managed care plans vary greatly in benefits and out-of-pocket expenses, so it is important to try to find the best policy to fit your circumstances.

If you like to have a primary doctor manage your care, you may want to look for an HMO or EPO plan.

If you see a lot of specialists, but don't want to always go through a primary care doctor, then PPO or POS plans might work better for you.

Keep in mind that due to the greater flexibility, the PPO or POS plans may have higher out-of-pocket costs, and whenever you go to specialists or receive medical care out of the network, you will likely be paying more.