Understanding HMO, PPO and FFS Health Insurance Plans

Health insurance is offered in various forms today. 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 were aimed at providing 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 utilize strategies to contain health care costs. These health plans are similar in certain ways. Both HMO and PPO plans contract with health care providers to provide health care services at reduced rates for the health insurance plan members. Typically both plans require the the member have a primary care provider, or PCP, who serves as a “gateway” to coordinate care for the member, and all specialty services are accessed by referral from the PCP. Both HMOs and PPOs require that certain services and products, usually the more costly ones, be reviewed by the health insurance reviewers for prior approval or prior authorization before the service is rendered. The health care provider must submit justification for these services as “medically necessary”, and the reviewer determines whether the service is a covered service. The plans do make provision for emergency situations that cannot wait for prior approval/authorization, but still require an approval process.

HMOs and PPOs differ in significant ways, however. A PPO plan often covers services rendered by providers that are not in the plan network, though usually at a lower rate than given for network providers. HMOs usually offer no coverage for out-of-network health care providers.

Advantages of HMO/PPO plans typically include lower health insurance premiums than those of traditional health insurance plans. HMOs and PPOs often offer coverage for preventive and health maintenance care not covered by indemnity plans. The health plan member is usually not required to file claims for health care services; contract providers bill the health insurance plan directly.

Disadvantages of these managed health care plans include limiting coverage to providers in the health care plan. Plan members must change primary care providers if their provider is not in the health plan network. Many members do not want to change health care providers. Another disadvantage is that prior approval/authorization processes can be time-consuming and slow down the delivery of needed health care services. Specialty health care can only be accessed through referral from the PCP.

In summary, HMOs and PPOs offer lower premiums and increased coverage, but limit members to their network of providers. Indemnity plans allow the member to see the health care provider of their choice, and to access specialty care when they want, but usually pay higher premiums for health insurance coverage. Ultimately the health plan member must decide whether choice of physician and access to specialty care are worth the higher premiums. Whatever plan is chosen, it is vital for members to know their health insurance plan, including what services are covered and what providers are in network.