What is the difference between an HMO, a PPO, Point-of-Service plan, Indemnity, and other choices?
If you are lucky enough to have several options to choose from when selecting health insurance, you’re probably faced with a decision of which type of plan to go with. We’ll try to simplify this, because even within the healthcare industry the lines are fuzzy and blurry. Think of these plans as less of unique entities, and more of a gradient of options that have some overlap in them.
In simplest terms, you as the buyer of a health insurance plan need to make a choice: What kind of flexibility do you want in your health coverage, and what price are you willing to pay for it? After you sort out the fine print and term limitations, it all comes down to that.
We’ll list the plans from high-flexibility, high-price to low-flexibility, low-price. Remember, this is just a general guide. Your health plan options may be quite different, and increasingly they will not even go by the acronyms listed below – insurance companies are always trying to find more attractive names for their offerings, such as “Choice“, “Plus“, or “Value“. When comparing your health plans in an employee handbook, skip over the text and go straight to the comparison tables where you can see the plans side-by-side. That is where the differences emerge.
Health Maintenance Organization (HMO). An HMO typically is the lowest-cost option that you’ll find, with the exception of a High Deductible Health Plan (HDHP) / Health Savings Account (HSA) option, which is really a different approach altogether. HMOs typically have you choose a primary care physician (PCP) who then becomes the “gatekeeper” for all of your care. Beyond your PCP, there will always have a defined network (a group of physicians and facilities which your care needs to be directed to) and patients are given financial incentives to use the network (and penalties if they don’t). HMOs often have small copays and 100% coverage for many of the services that are provided in the network. You can get stung, however, if you go to an out-of-network doctor or need to have a non-emergent medical care while out-of-town.
Good for: Families and individuals who want the lowest cost health coverage, predictable copays, and are willing to stay in the network even if it means changing doctors occasionally.
Point-Of-Service (POS). A POS resembles an HMO in that you will likely have a PCP as the gatekeeper for your care and will be highly encourage to stay within your network for any care you receive. Most of your care, beyond the PCP, will be via referral from your PCP, and the care you seek within the network will likely have a small copay. Where the POS departs from a traditional HMO is in the flexibility. You will likely have an option to go out-of-network for care but will have to pay more for it. A common arrangement will be a deductible up-front (for out-of-network care) with a 20% copay in addition. Premiums are higher than an HMO. Good for: People who will primarily use their network physician but want some flexibility to see a favorite specialist or seek routine care while travelling.
Preferred Provider Organization (PPO). A PPO, for many, will be the most flexible option on your menu. A typical PPO has a large network, or roster, of physicians, and you can see any of them instead of just a PCP. A PPO also has much more flexibility in going out-of-network. You will usually have a deductible to satisfy before any care is paid for. A likely arrangement, once the deductible has been met, would be a $20 copay if you seek care within the network, or a 10% or 20% copay if you go outside. Premiums are higher than an HMO or POS.
Good for: People who want a choice of physicians to access rather than just one, and people who spend a lot of time outside the area where the network is.
Indemnity. To understand an indemnity plan, think of your car insurance. You pay a monthly premium, and in return you can go to any doctor or any facility for any medical service you want. Your plan will probably pay 80%, 90%, or even 100% of all care after a deductible has been met. Indemnity plans typically don’t have the same authorization requirements as other plans do. Prior to about 1990, most health plans were indemnity. Today, less than 15% are.
Good for: Families and individuals who want the utmost flexibility and are willing to pay a higher monthly premium and possibly higher deductibles on a per-visit basis.