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

Learn about the different types of provider networks

UnitedHealth Group Headquarters
UnitedHealth Group Headquarters. Credit: Credit: Bloomberg / Contributor

If you are self-employed or otherwise find yourself in a situation where you need to obtain your own health insurance coverage, the choices available to you can be confusing. Yes, benefit packages are standardized, thanks to the Affordable Care Act, but other aspects of coverage differ significantly from policy to policy.

While shopping, you'll be sifting through terms like HMO, PPO, co-payments, and deductibles, all of which can be intimidating if you don't know what they mean.

The best place to start, though, is to look at the type of physician network offered in various policies: HMO, PPO, and fee-for-service.

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. These plans tend to be the least expensive coverage options.

HMOs require you to give up flexibility in choosing your doctor or medical facility and to stick to 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.

Plans that are set up as 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's not in the network. Emergency care generally is covered, however, even if it takes place out-of-network.

You'll also have co-payments, which are your share of a payment to a physician or other providers, and a deductible, which is a set amount you'll have to pay for medical care before your insurer will start paying.

PPO (Preferred Provider Organization) Policy

PPO plans give you more flexibility than an HMO, and they usually cost more too ...

sometimes, much more, depending on the specific plan.

As with an HMO, a PPO will have a list of "preferred providers" — 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 these providers.

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.

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. They're generally the most expensive type of health insurance.

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.

Like all health insurance policies, a fee-for-service policy will require you to pay deductibles and co-payments for your medical services.

HMO vs. Fee for Service vs. PPO Insurance Plans

When comparing different individual health plans, you should start with what features are most important to you and your family.

If choosing your own doctor is of utmost importance 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 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 look at similar plans side by side.