Types of Individual Health Insurance Policies: HMOs, PPOs, and FFS

Health history claim form used in a doctor's visit, once the patient has provided their type of health insurance

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Having to obtain your own health insurance coverage, whether you're self-employed or for any other reason, can be a little overwhelming if you're not an insurance expert. One of the biggest challenges is deciphering terms like HMO, PPO, and fee-for-service to understand what they mean and what's covered (or not). Each of these three terms refers to the type of physician network a health insurance policy offers. If you need help understanding your coverage options, here's a closer look at what they mean.

HMO (Health Maintenance Organization) Policy

Many of the plans you'll find offered both on and off your state's individual health insurance exchange will be HMO plans.

In terms of the advantages, these plans tend to be the least expensive coverage options. That might appeal to you if you're looking for lower premiums and out-of-pocket costs for things like co-pays and deductibles. The other side of that coin, however, is that HMOs require you to give up flexibility in choosing your doctor or medical facility.

You're limited to choosing your physician from the list of providers included in the HMO. In some cases, this list can be quite restrictive. You may have to get a referral from your primary care physician in order to see a specialist, which could be a headache if you or a family member covered by your plan requires specialized care.

HMOs may have what's called a "closed network," which means the insurer won't pay anything for your care if you see a doctor or other health care provider who is not in the network. The exception that rule is if you need emergency care while you're outside your immediate network. In that scenario, your HMO may still cover the cost of care.

As part of your enrollment in an HMO plan, you must choose a Primary Care Physician (PCP) to oversee your medical care.

PPO (Preferred Provider Organization) Policy

PPO plans give you more flexibility than an HMO. When you enroll in this type of plan, you'll be given a list of "preferred providers," which are doctors and hospitals that have agreed to participate in the plan. These providers are called in-network providers, and it will cost less for you to see them for health care.

You also have the option to visit another provider of your choice even if they are not in the network. In this case, your insurance may cover part of the service, but typically you'll be required to pay for a larger percentage out of your own pocket.

Like HMO policies, PPO policies also will carry deductibles and require co-payments. Cost-wise, a PPO will typically have a higher deductible than an HMO. The cost of out-of-network treatment may not count toward fulfilling your annual deductible so if you're considering this type of policy, read over your coverage terms carefully.

Typically, a PPO plan won't require you to get a referral to see a specialist, offering more flexibility than an HMO plan.

Fee-for-Service Policy

Fee-for-service (FFS) policies (sometimes also called indemnity plans) are becoming less and less common, in fact, you may not find one at all in your state. But if your state offers them it's worth comparing their features to those of an HMO or PPO.

In fee-for-service plans, you can choose any doctor and any hospital you want. You pay the bills directly, and then you file the paperwork with your insurer to be reimbursed for the charges. This makes them exceptionally convenient but also costly. They're generally the most expensive type of health insurance you can purchase if you're seeking coverage outside of an employer's plan.

Like all health insurance policies, a fee-for-service policy will require you to pay deductibles and co-payments for your medical services. The amount of the co-payment and deductible will largely hinge on your plan coverage and premium rates in your state.

HMO vs. FFS vs. PPO Insurance Plans

When comparing different individual health plans, you should start with what features are most important to you and your family. Two significant considerations are cost and access to the health care providers you prefer to use.

For example, if choosing your own doctor is the most important thing to you, then you'll need to choose an HMO or PPO that includes your doctor, or select a fee-for-service plan, assuming one is available in your area.

If, on the other hand, keeping your costs down is critical, you may want to look more closely at an HMO. However, be careful not to be deceived by a low premium; make sure you also compare expected out-of-pocket costs. Once you've determined which type of plan will suit you best, you can begin to compare individual policies under that umbrella.

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