Health Insurance 101: Comparing Types of Coverage
Millions of folks dread choosing a health insurance plan. In fact, it feels less like a benefit and more like a chore — especially since that are so many logistics and financial concerns to wade through. Moreover, the process is filled with jargon and a dizzying variety of choices.
To make things a little bit more approachable, we're breaking down the most common types of health insurance plans — HMO, PPO, EPO, and POS plans — as well as other supplemental forms of coverage, like HSAs. (And don't worry — we'll break down those acronyms, too.) After all, understanding the unique features of each type of insurance plan is the key to choosing the best coverage for you and your dependents.
Health Maintenance Organizations (HMO)
Traditionally, HMOs are a less expensive option. In essence, they offer medical services to their members for a fixed rate. HMOs are able to offer this fixed pricing because they have their own network of doctors, hospitals and other health-care providers, all of whom have agreed to accept a particular payment level for their services. To access these services and price points, patients pay a health insurance premium to be a part of the organization. Usually, HMOs do not have deductibles — but, if they're required, they're minimal.
As long as a patient sees an in-network provider, they just pay a co-pay for their visit. To clarify, co-pays are usually set rates based on the type of medical provider the patient sees. For example, a patient may pay $25 to see a primary care physician, $50 to see a specialist, and $100 for emergency room visits. These prices will stay the same for the given year.
With an HMO plan, patients pick their in-network primary care physician, who can they refer the patient to specialists — even those who are out-of-network specialists. If a patient visits an out-of-network provider, they will be responsible for their own medical bills. Some HMOs cover out-of-network emergency care or highly specialized types of care in special circumstances.
Depending on location, the network of providers within an HMO can be rather limited. In some cities, large businesses have primary care physicians and a variety of specialists all within the same organization. HMOs commonly form contracts with these types of organizations, so a patient in an HMO could be limited to one large medical group for care.
Preferred Provider Organizations (PPO)
With PPO health insurance, patients pay higher monthly premiums, but they get more choices when it comes to medical providers. Medical professionals and health-care facilities form contracts with insurers to be part of a PPO. Then, anyone under the insurance plan can go to any provider in the PPO for agreed-upon co-pay rates, all of which vary depending on the type of service. Much like an HMO, there is a set co-pay for primary care, specialty care, and emergency care.
Unlike HMOs, most PPOs have annual deductibles. Patients must pay medical expenses out of pocket up to the deductible amount, and then the insurance will cover medical expenses after that. Once the deductible is met, patients only pay co-pays.
If a provider is in-network, the patients can rest assured that the only out-of-pocket cost will be the co-pay. If a provider is out-of-network, or not a member of the PPO, health insurance will cover the visit up to a certain amount, and the patient will be fully responsible for any costs beyond that amount.
Even with out-of-network providers, patients are still responsible for a co-pay, which is higher when they choose to go out of network. Each PPO publishes annual standards for the costs that they will pay for different types of out-of-network visits. Depending on the costs of the health-care providers patients choose, a person using a PPO for health insurance may be able to exclusively visit out-of-network providers without any additional cost — other than a higher co-pay.
Even inside the network, PPOs often offer more options than HMOs. Whereas an HMO may contract with one large medical group, a PPO may contract with two or three large medical groups. Of course, some locations have far more doctors, and, therefore, more possibilities than others. Moreover, PPO patients can choose primary care physicians, but this physician is not a "gatekeeper." That is, a patient can freely visit specialists even without a referral from their primary care physician.
Exclusive Provider Organizations (EPO)
Like the other types of health insurance, EPO plans allow providers to contract with insurers to be on their list of eligible health-care providers. In an EPO, patients are limited to the list of in-network providers. Insurance coverage is exclusive to the list.
If a patient with an EPO for health insurance goes out-of-network the patient will be responsible for 100% of their own medical costs. The only exception to this rule is when a patient needs emergency care and there are no member providers available. For example, an EPO may help cover a portion of the costs for a patient who gets in a car accident out of state.
Additionally, EPO patients do not need a primary care physician, but they may need pre-approval from their insurance provider before scheduling certain types of high-cost medical procedures.
Point of Service (POS)
POS plans rely on a network of providers wherein primary care physicians are gatekeepers. Patients pay a monthly premium and pay set co-pays for any providers within the network. Primary care physician referrals are needed for both in-network specialists and out-of-network care.
A POS will pay for out-of-network care if the primary care physician submits a referral and pre-approval information on behalf of the patient. Of course, the patient will still be responsible for a higher co-pay for any out-of-network care, and health insurance covers a smaller portion of out-of-network care. These plans are an amalgam of features common to HMOs and PPOs.
Health Savings Account (HSA)
People who have health insurance plans with high deductibles can open an HSA. Similar to a retirement account, this account can be funded by both individuals and their employers. Each year, the Internal Revenue Service (IRS) determines annual limits on how much a person can deposit in an HSA depending on the size of their family. When choosing your coverage, you can select an amount (up to that predetermined limit) to put into your HSA.
This money is taken out of your paychecks pre-tax — funds you put into an HSA are not subject to federal income tax at the time of deposit — but, once your yearly coverage kicks in, you can access the full funds pretty immediately. With HSA funds, a patient can pay for health-care costs that are not covered by their insurance. Most often, this is useful for folks dealing with expensive annual deductibles or for those who need specialized equipment, medicine and/or procedures.
Before choosing a plan, each patient should decide if they can afford a deductible. Patients should also consider how much flexibility matters when it comes to doctors and specialists they can access with their coverage. That is, if you visit specialists more frequently, a more flexible plan may be beneficial. No matter your decision, it's clear that patients who have more knowledge of health insurance options can make more informed choices.