HMOs and PPOs

Buying health insurance requires a certain amount of research before you even begin comparing insurance quotes and part of that research is learning the terminology and types of health insurance that are available. Two health insurance related terms that get tossed around a lot, but you might not be completely clear on what they are and how they are different are health maintenance organizations (HMOs) and preferred provider organizations (PPOs)

Health Maintenance Organizations

Here is a very basic definition of an HMO – a prepaid group health insurance plan entitling its members to the services of participating physicians, hospitals and medical clinics. HMOs emphasize preventative medicine, and plan members must use contracted health-care providers.

On the plus side, HMOs don’t have a deductible to be met by plan members. There is a co-pay for visits, and the emphasis on preventative medicine often reduces or alleviates the need for more expensive treatment down the road. Another positive aspect of HMOs is paperwork for the patient is typically eliminated. The biggest downside is you are limited to doctors and medical facilities in your HMO plan.

Preferred Provider Organizations

A basic definition of a PPO – a network of medical providers who charge on a fee-for-service basis, but receive payment on a negotiated, discounted fee schedule to lower health care costs for plan participants.

A major disadvantage for PPOs and HMOs is going outside of your health insurance plan for any medical services. Instead of your small co-pay, you’ll have to cover the entire cost of medical service yourself and present that bill to your PPO or HMO for some level of reimbursement. You most likely will not have the entire bill covered and part of the determination will be based on your plan’s usual, customary and reasonable rate schedule.

Did you know? HMOs by design violate your doctor/patient confidentiality privilege by using medical records to evaluate participating physicians.

Takeaways:

1. HMOs are prepaid group health insurance plans with specified doctors and medical facilities.
2. PPOs are networks of medical providers charging on a fee-for-service basis on a discounted fee schedule.
3. Your health care costs go up dramatically with both HMOs and PPOs when you go out of your plan’s network.

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