Understanding HMO, PPO, and FFS Health Insurance Plans

Today, health insurance is offered in various forms. 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 health care costs became astronomical, health insurance companies developed different plans that aimed to provide quality health care at affordable prices. Managed health 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 some ways. Both HMO and PPO plans have contracts with health care providers to provide health care services at reduced rates for members of the health insurance plan. Generally, both plans require the member to have a primary care provider, or PCP, who serves as a “gateway” to coordinate the member’s care, and all specialty services are accessed through a referral from the PCP. Both HMOs and PPOs require that certain services and products, usually the most expensive, be reviewed by health insurance reviewers for approval or prior authorization before the service is rendered. The healthcare provider must justify these services as “medically necessary” and the reviewer determines if the service is a covered service. The plans anticipate emergency situations that cannot wait for prior approval / authorization, but still require an approval process.

However, HMOs and PPOs differ significantly. A PPO plan often covers services provided by providers that are not in the plan’s network, although generally at a lower rate than that provided to network providers. HMOs generally do not offer coverage for out-of-network health care providers.

The advantages of HMO / PPO plans generally include lower health insurance premiums than traditional health insurance plans. HMOs and PPOs often offer coverage for health maintenance and preventive care not covered by indemnity plans. Generally, the health plan member is not required to submit claims for health care services; contracted providers bill the health insurance plan directly.

Disadvantages of these managed care plans include limiting 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 health care providers. Another downside is that pre-authorization / approval processes can be time consuming and slow down the provision of needed health care services. Specialty medical 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 provider network. Indemnity plans allow the member to see the health care provider of their choice and access specialty care whenever they want, but generally pay higher premiums for health insurance coverage. Ultimately, the health plan member must decide whether doctor choice and access to specialty care are worth the higher premiums. Whichever plan is chosen, it is vital that members are aware of their health insurance plan, including covered services and network providers.

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