Before shopping around for a health insurance policy or selecting from the policies available through your employer, there are certain things that you need to understand about health insurance in general. Health insurance plan documents can be very difficult to read and understand for many who have never been exposed to the insurance world. There are a lot of different terms that are common to most plan documents, but what do they mean? You would be surprised at how many people know the basic differences between HMO, PPO, and POS policies. So, we will start by providing a brief explanation of each and the basics of how they differ.
1.) HMO – This is a Health Maintenance Organization. With an HMO, you will have to select a Primary Care Physician (PCP) from a list of the insurance companies panel of participating physicians. This is your family doctor or general practitioner. He acts as a gatekeeper. Any time you need non-emergency services, you will be required to see your PCP first. With most insurances, once you are assigned to a PCP, that doctor will receive a small amount of money each month to oversee your care. This fee is called a per capita rate and is usually only a few dollars per patient, but if they have a lot of patients assigned to them, it can really add up each month.
If your PCP examines you and determines that you need care that they cannot provide, then they will refer you to a specialist or another provider who can offer the care necessary. There’s more to it than the doctor just scheduling an appointment for you to see the other provider when you have an HMO insurance policy. Your PCP will typically fax or mail a copy of your medical records and a letter of introduction (referral letter) that explains your PCP’s findings and any other key information they feel the specialist might need ahead of time. The PCP will then fax a referral form to your HMO insurance company. If the specialist is on the insurance company’s list of approved physicians, then the referral is normally approved and validated. If the specialist is not on the list of approved physicians, then the referral will be denied and you might be held responsible for any fees you incur at the specialist’s office. It is extremely important that you always, always, ALWAYS use only in-network providers while you have an HMO policy or you might have no coverage and will be stuck with unnecessary bills. Just because your PCP refers you does not mean that the specialist is in network, so you will need to call your insurance company each time you see a new provider to make sure that they are participating (in-network) and that the referral is on file.
HMO’s also require authorizations for most procedures that are expensive, unusual, or not performed in the physicians office. In order to obtain an authorization, the participating physician who is ordering the services will have to submit your medical records along with an authorization request form to the HMO, even for outpatient procedures, physical therapy, speech therapy, occupational therapy, and the list goes on. Anything involving in-patient treatment or In-patient admission to the hospital will require authorization prior to you being admitted, except in emergency situations. In emergencies, the authorization will be attempted after the admission.
One of the things that I love about most HMO insurance plans is that you are protected in a lot of ways. As long as you play by the insurance company’s rules and you go to a participating provider that is on their list of approved physicians/facilities then you have done your part. The insurance company will hold the facility (hospital) responsible if they treat you for a service that requires a precertification or authorization and fail to obtain it.
If you do everything on your part that you are supposed to do (go through PCP, get referral, etc..), but the hospital or medical facility doesn’t follow through with the authorizations/precertifications and the claim is denied for this reason, then they can’t bill you for it in most cases. They can charge you whatever copay you might have had to pay regardless, but unless they are able to file an appeal and get a retro-authorization or retro-precertifciation, then they are going to have to write the charges off and can’t bill you for any balance above your copayment.
It is part of the hospital or facility’s contract with the HMO as a participating provider that they must agree to play by the rules, same as the patient/insured. This is why it is so important that if you have an HMO you only go to providers and facilities that are in-network. If you go to a provider that is not participating with your HMO, then it means they have no contract with your insurance and you will be held responsible for any charges not paid by your insurance company. FYI, except in extreme circumstances, HMO’s do not pay anything to an out of network or non-participating provider.
Another great thing about HMO’s is that they are often less expensive than PPO and POS plans. You also typically know exactly to the penny how much you will be paying before a service is performed since they do not involve coinsurance, but use copayments. In case you are wondering what the difference is, a coinsurance is normally a percentage of the “allowed” amount (the maximum amount the insurance will pay for a given service or procedure). A copayment is a set dollar amount. For example, if you go to your doctor’s office and you have a $25 copayment, then that is all you will have to pay for services received during that visit, regardless if you have a bill that adds up to $50 or $5,000. With an HMO, you also know ahead of time how much you will likely be responsible for with outpatient services, in-patient hospitalization, and ER visits. Your plan document typically spells out how much the copayment will cost you for each service.
On the down side, some insurance companies have given HMO’s a bad name by refusing to authorize services that are medically necessary. If a doctor or hospital knows up front that the HMO will not authorize a service, then they simply won’t do it. There have been some pretty nasty lawsuits throughout history because a patient has died or suffered un-neccessarily due to an insurance company refusing to authorize a medical procedure that would normally be covered and is medically necessary.
Although these types of cases get a lot of publicity, they don’t happen very often with the reputable insurance companies. For this reason, I highly recommend that you do a little background research into any insurance company before you enroll and essentially put your life into their hands. If you already have insurance and find yourself in this situation, then I strongly suggest that you first file an appeal asking for reconsideration. If that doesn’t work, then seek assistance from your local insurance commissioner or hire an attorney.
In general, HMO’s do not limit your out of pocket maximum per year due to the fact that with an HMO either the services are covered or they aren’t. Your copayments are usually minimal and there are no deductibles or coinsurance amounts to pay.
2.) PPO – Preferred Provider Organization. A PPO still involves a list of network providers that have contracts with your insurance company. Same as with an HMO they have a maximum dollar amount that is allowed per service or procedure performed (maximum allowed amount) and they still have to obtain precertifications or authorizations for many out-patient procedures and almost all In-Patient hospital procedures. However, you are not required to go to a PCP first with almost all PPO policies. In other words, if you have a broken foot, then you have the option to go to your family doctor, but you can also go to a specialist such as an orthopaedic surgeon without having to get a referral from your family doctor and the insurance company will still pay for the service.
A PPO is also different from an HMO in the way that a PPO has two levels of coverage. A PPO will pay a certain amount to in-network providers (typically a coinsurance or percentage amount), but if you go to a provider that is not contracted, then the insurance will still pay, but with a lower percentage, which means that you will be stuck paying a lot more. As a general rule of thumb, just make absolutely certain that you stick with a participating provider or facility even with a PPO policy so you don’t have to pay more than necessary.
So, you have a little more flexibility with a PPO since referrals are not required and a PPO will atleast pay something if you go out of network where an HMO will not.
A PPO plan will also have a deductible in most cases. A deductible is a set dollar amount that you have to be responsible for paying if services are received, especially in a hospital setting. Common deductible amounts that I have seen range from $0 to $5,000 for in-network services and $500 to $10,000 for out-of-network services depending upon how the policy is written.
PPO plans generally have an out-of-pocket maximum. This is a good thing! If your out of pocket maximum is listed as $5,000 per year, then once you have paid out $5000 in medical expenses, your covered services will be paid at 100%. This amount varies per policy, so you will want to pay close attention to this detail.
3.) POS – Point of Service – A POS plan in a way is a combination of an HMO and a PPO. It has three levels of coverage. Just like an HMO, a PPO does assign you to a PCP and you will be required to get a referral to specialists or any providers other than your PCP. However, if you or your provider forget to obtain a referral to a specialist and you are treated, then the claim will still be paid, but on a reduced basis.
To better explain the three levels of coverage, level 1 is a service received in-network with a referral and/or authorization and is paid at the highest rate. Level 2 is a service received in-network without a referral and/or authorization and is paid at a lower rate that level 1. Level 3 is a service received in an out-of-network office or facility and is paid at the lowest rate. With payment levels 2 and 3 you will be held responsible for paying the excess not paid by the insurance company (up to the allowed amount for in-network, and up to the actual billed charges for out-of-network).
A POS plan can still deny charges that are not determined to be medically necessary and leave you responsible for the charges, so be sure that all services you receive are authorized.
Like a PPO, a POS plan typically does have a set In-Network deductible, Out-of-Network deductible, and an out of pocket maximum.
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Of course, there are plenty of other differences, but these highlight the basics of what you need to know about the 3 major types of health insurance coverage (not including Medicare, Medicaid, and supplement policies that are a whole other animal entirely).
Personally, I prefer an HMO because it typically costs the least of all the policies and out of pocket charges are minimal. I’m willing to put up with a little hassle of getting referrals, precerts, and authorizations when necessary in order to save a little money.
PPO plans are great too because they allow you more freedom since you won’t have to deal with the referrals and many out-patient procedures and therapies are covered without referral or precertification. But, PPO’s will still require authoriztion for the major services and you could easily be out a great deal of money, up to your out-of-pocket maximum in case of a serious illness or injury.
With a POS plan, it is nice to know that you will still have some coverage even if you fail to get a referral or you go out-of-network, but many have high deductibles and high out-of-pocket maximums.
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Before you enroll in any insurance policy, there are other things that you need to pay very close attention to, regardless of the type of plan.
1.) Always read the plan limitations and exclusions. These are normally located near the end of an insurance plan document. These are extremely important! The limitations will tell you things like how many hospitalization days are allowed per year, how many out-patient therapy visits are allowed, how many chiropractic visits can be paid each year, etc… The exclusions will tell you which services will not be covered such as self-inflicted injuries, injuries received during an act of crime, injuries related to acts of war, and whether or not services are covered such as podiatry, chiropractic services, alcohol and drug rehab, mental health services, dental, vision, etc…
2.) Always read over the Schedule of Benefits (S.O.B.) with great care. This page of the document will explain which services are covered and how much will be paid. This is also where you will see your out of pocket maximum, deductible, and copay amounts listed.
3.) Read any other fine print and ask questions from someone you trust if you aren’t sure about something in the contract. Do not sign an insurance contract unless all of your questions have been satisfactorily answered and you are certain that the policy is the one you want. Insurance contracts can be very tricky things, so do not feel embarrassed to ask for help if you don’t understand something.
4.) Be sure that you have a copy of the premium charges and frequency of payments before you sign as well.
Remember, when you enroll in an insurance policy and place your signature on the dotted line that you are entering a legal, binding contract. Again, please do not sign the contract until you understand all terms and conditions listed. If an insurance agent tries to rush you into signing a document without giving you all the facts or giving you the opportunity to have a third party review the contract if you are uncertain of the contents, then do not give them your business. You have the right to research an insurance company and to understand all aspects of a contract before you sign. If an agent is trying to rush you, then they most often have something to hide and you are better off to bid them farewell. Also, if it seems like too good of a deal to be true, then it probably is.
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If you need to know where to shop for insurance, then you might want to go online and Google “health insurance quotes for (name of your city, state). You can also pick up your local phone book and flip to the insurance section to see if there are any insurance agencies in your local area. If you are unemployed, disabled, or have low-income, then you might do best to visit your local department of human services for assistance. They can at least inform you whether or not you might qualify for government funded insurance such as Medicaid or Medicare and can often assist you with completing the forms.