Choosing health insurance involves lots of tradeoffs – between lower cost versus more choice, and between lower premium cost versus higher deductibles and copayments. Say you have a choice between an HMO and a PPO. How do you choose?
Pros and cons of HMOs
HMO stands for health maintenance organization. The original idea behind HMOs was that if a group of doctors was responsible for the whole cost of health care for a group of people, they would have an incentive to provide preventive care that could help people avoid expensive medical problems, and provide good care for people with chronic conditions like high blood pressure and diabetes so they could stay out of the hospital. This would be good for people’s health, and good for cost control.
Did HMOs work as they were intended? They did, to a degree. The ideal that the HMO would be invested long-term in the health of the people they covered was never going to be fully realized, for the simple fact that most people can change insurance companies once a year (since many large employers offer more than one insurance option). But during the 1990’s, HMOs were popular with employers because they did help to hold costs down. Many individuals also liked the lower, more predictable costs of HMOs.
So, it’s all good, right? Not quite, because the downside of HMOs is, they restrict the patient’s choice of providers. HMOs were able to negotiate low rates from physicians and hospitals because they locked in a patient population to a small network. Providers figured they could take a lower rate if they could make it up on volume. Also, HMOs don’t allow patients to just go and get whatever specialized care they think they need. Generally, to see a specialist, a patient would have to get approval from their primary care provider. Late in the ‘90’s, there was a rebellion against restrictive HMOs, because people didn’t like being told what doctor they had to go to, and didn’t like having to wait for approval to see a specialist.
What does this mean for you? You might pay a lower premium with an HMO, because doctors and hospitals charge the HMO less. Your out-of-pocket costs will probably be pretty predictable, limited to an annual deductible and a standard copay for an office visit. On the other hand, you will have to go to the doctors and hospitals in the HMO’s network, except for emergencies or rare conditions that the HMO can’t cover in-network. In most cases, if you go to an out-of-network provider, it’s all on your nickel. (That’s usually, but not always the case. There are some HMO plans that are called “point of service” plans, meaning that the patient can choose to see a network provider, or go out-of-network and pay a higher copay.) Also, you will usually be assigned to a primary care provider (PCP). This will be a physician in the specialty of internal medicine or family practice (or in some areas, a gynecologist), who will be in charge of your overall care and will have to approve specialist care and hospitalization.
So – bottom line on HMOs – lower cost, less choice. If you’re thinking about an HMO, get a copy of the provider directory and see if the doctors and hospitals on the list will work for you.
Pros and cons of PPOs
PPO stands for preferred provider organization. Like HMOs, the PPO has a network of doctors and hospitals that have contracted with the PPO, and if you go to a network provider, you have to pay less out-of-pocket. But you can go to a doctor who is not in the network, and still get some of the costs covered. In most PPOs, you don’t have to get the approval of your primary care doctor to see a specialist, but you probably do need to get approval of the insurer for hospital care and other expensive services.
What does this mean for you? You will probably have to pay a higher premium for a PPO plan than for an HMO. The bigger the provider network, the more expensive it will be. So the bottom line for PPOs is: higher cost, more choice.