Health insurance is offered in various forms today. Traditionally, health insurance plans were indemnity plans; the insured paid a premium, the physician provided health care services, the health insurance plan was billed, and the health insurance plan paid for covered services. As healthcare costs have become astronomical, health insurance companies have developed different plans aimed at providing quality healthcare at affordable prices. Managed care became the buzzword for the health insurance industry, and health insurance plans became more complicated.
Health maintenance organizations, or HMOs, and preferred provider networks, or PPOs, have largely replaced the traditional indemnity health plan. HMOs and PPOs use strategies to contain health care costs. These health plans are similar in certain ways. Both HMO and PPO plans contract with health care providers to provide health care services at reduced rates for members of the health insurance plan. Both plans generally require the member to have a primary care provider, or PCP, who serves as the “gateway” to coordinate the member’s care, and all specialty services are accessed by referral from the PCP. Both HMOs and PPOs require certain services and products, typically the most expensive ones, to be reviewed by health insurance reviewers for pre-approval or prior authorization before the service is provided. The health care provider must submit justification of these services as “medically necessary” and the reviewer determines if the service is a covered service. The plans provide for emergency situations that cannot wait for prior approval/authorization, but still require an approval process.
However, HMOs and PPOs differ in significant ways. A PPO plan often covers services rendered by providers who are not in the plan’s network, although usually at a lower rate than what is granted to in-network providers. HMOs generally do not offer coverage for out-of-network health care providers.
Advantages of HMO/PPO plans generally include lower health insurance premiums than traditional health insurance plans. HMOs and PPOs often offer coverage for preventive and health maintenance care not covered by indemnity plans. Generally, the health plan member is not required to file claims for health care services; contracted providers bill the health insurance plan directly.
Disadvantages of these managed care plans include limited coverage to providers in the health care plan. Plan members must change their primary care provider if their provider is not in the health plan’s network. Many members do not want to change their health care provider. Another disadvantage is that prior approval/authorization processes can be time consuming and slow down the delivery of necessary health care services. Specialty care can only be accessed through a PCP referral.
In short, HMOs and PPOs offer lower premiums and more coverage, but limit members to their network of providers. Indemnity plans allow the member to see the health care provider of her choice and access specialty care whenever she wants, but they typically pay higher premiums for health insurance coverage. Ultimately, the health plan member must decide whether the choice of physician and access to specialty care justify the higher premiums. Whichever plan is chosen, it is vital that members understand their health insurance plan, including what services are covered and what providers are in the network.
