Question

What is the cost effectiveness in having an HMO or a PPO?

Answer 1

Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) administer the most common types of managed care health insurance plans. Managed care plans typically arrange to provide medical services for members in exchange for subscription fees paid to the plan sponsor—usually an HMO or PPO. Members receive services from a network of approved physicians or hospitals that also have a contract with the sponsor. Thus, managed care plan administrators act as middlemen by contracting with both health care providers and enrollees to deliver medical services. Subscribers benefit from reduced health care costs, and the health care providers profit from a guaranteed client base.

Managed care plans emerged during the 1990s as the main alternative to traditional, fee-for-service health insurance arrangements. In a fee-for-service arrangement, employees can go to the hospital or doctor of their choice. The plan reimburses costs at a set rate—for example, the insurance company might pay 80 percent and the company or individual enrollee might pay 20 percent—for all medically necessary services. Although they serve the same basic function as traditional health insurance plans, managed care plans differ because the plan sponsors play a greater role in administering and managing the services that the health care providers furnish. For this reason, advocates of managed care believe that it provides a less expensive alternative to traditional insurance plans. For instance, plan sponsors can work with health care providers to increase outpatient care, reduce administrative costs, eliminate complicated claims forms and procedures, and minimize unnecessary tests.

Managed care sponsors accomplish these tasks by reviewing each patient's needs before treatment, requiring a second opinion before allowing doctors to administer care, providing authorization before hospitalization, and administering prior approval of services performed by specialists. Critics of managed care claim that some techniques the sponsors use—such as giving bonuses to doctors for reducing hospitalization time—lead to under treatment. Some plans also offer controversial bonuses to doctors for avoiding expensive tests and costly services performed by specialists.

Explaining HMOs

• HMOs give you access to doctors and hospitals that are within a network established by the insurance company.
• Those HMO networks are made up of healthcare providers who meet certain qualifications and who have agreed to provide their services at prices negotiated with the insurance company.
• Typically, this means that healthcare providers participating in an HMO are paid less by the insurer than they might otherwise be paid -- a concession that doctors and hospitals are willing to make in exchange for access to more potential patients.
• Since HMOs only contract with a certain number of doctors and hospitals in any one particular area, and insurers won't pay for healthcare received at out-of-network providers, the biggest disadvantages of HMOs are fewer choices and potentially, higher costs. Other drawbacks to HMOs include needing to obtain a primary care referral before seeing a specialist, and annual limits on the number of office visits, tests, and certain treatments.
• In exchange for accepting the limitations of an HMO, patients usually pay lower monthly insurance payment premiums, and in some cases they may not have to pay some deductibles.

Explaining PPOs

• PPOs offer patients more flexibility than HMOs, but that flexibility comes at a price.
• Like HMOs, PPOs establish networks of healthcare providers, but PPOs have fewer restrictions on receiving healthcare from care providers or facilities that don't participate in their network.
• For example, PPO insurance plans will pay for out of network visits, and a referral isn't necessary before visiting a specialist, which can mean fewer visits to your primary care physician.
• However, the amount your insurance plan will pay for out of network care is likely to be less than it would pay for in-network care, and that can lead to surprising out of pocket expenses.
• Additionally, a patient's share of costs for out of network visits often doesn't count toward a patient's annual out of pocket maximum for PPOs. That means there's no limit to how much money you could end up spending on out of network healthcare each year.

Advantages and disadvantages of HMO health insurance

Many people enjoy having an HMO as health insurance because the plan does not require claim forms to see a doctor or during hospital stays. The HMO member only has to present a card that states proof of insurance at the doctor's office or hospital. In an HMO the members may have to wait longer for an appointment than with an indemnity insurance plan. The HMO charges a fixed monthly fee so its members can receive health care. There will be a small co-payment for each doctor visit; however with the HMO, fees can be forecasted unlike a fee-for-service insurance plan. Although freedom of choice is given up, out-of-pocket expenses are very low. In an HMO there are some disadvantages. The premium that is paid is just enough to cover the costs of doctors in the network. The members are “stuck” to a primary care physician and if managed care plans change, then the member may not be able to continue with the same PCP. On major disadvantage is that it is difficult to get any specialized care because the members must get a referral first. Any kind of care that is sought that is not a referral or an emergency is not covered. The HMO plan is one of the fastest growing types of managed care in terms of expenses, while being the most restrictive type of health care.

Advantages and disadvantages of PPO insurance
Health care costs are low when the member stays within the provided network. This plan allows more freedom than an HMO in many ways. The member is not required to choose a primary care physician and can see a specialist without a referral, including the specialists that are outside the network. If care is sought outside the network the costs are more expensive and all of the paperwork can be the individual’s responsibility. This plan offers a large network to choose from and an array of doctors. Co-payments will be more expensive than other types of managed care due to the cost of extra amenities provided. PPOs are less expensive than a fee-for-service type. There are no deductibles in most plans; however, in some cases the member may need to pay one before receiving care. The out-of-pocket costs are large and the plan is limited in some ways, such as having to stay in the main network of doctors and specialists.

Are PPOs really more expensive?
Before choosing an insurance plan, people should consider co-pays, co-insurance, drug coverage, and other plan costs, however, a look at the average monthly premium payment for Medicare Advantage HMOs and PPOs shows that Medicare recipients can pay a lot more for a PPO's flexibility.

According to the Kaiser Family Foundation, the average Medicare Advantage regional PPO plan in 2016, unweighted by enrollment, cost $75 per month, or nearly double the $39 per month that it cost for a Medicare Advantage HMO plan.

Although PPO monthly premiums are higher for Medicare Advantage recipients, they may not be higher for people who get their insurance through the Affordable Care Act exchanges. Premiums vary from region to region and state by state, so consumers should shop around.

Similarly, if you're getting insurance through an employer, premium rates can also vary widely; however, the Kaiser Family Foundation reports that PPOs are still typically pricier than HMOs. In 2016, the average annual cost of an employer sponsored PPO plan was $6,800, while the average cost of a HMO plan was $6,576.

Tying it together
How out-of-network care is handled is the biggest difference between an HMO and PPO, but over time, that difference is blurring as more HMOs allow for some out-of-network benefits, and more PPOs decrease how much they'll pay for out-of-network visits. Because the gap between HMOs and PPOs is closing, it's becoming even more critical to consider total out of pocket expenses beyond monthly premiums -- and unfortunately, that makes choosing a plan even more confusing for consumers.