Knowing the differences between health insurance plans such as HMO, PPO, EPO, and HDHP can help you choose the right one for your healthcare needs and budget.
When it comes to health insurance, identifying the differences between HMO and PPO can be quite overwhelming. But even with that, you still want to make sure that the health plan that you choose allows you to see your preferred specialists or doctors, meets your family’s health needs, and is within your budget. While there are many health insurance plans including POS, EPO, and HDHP, the most common choices are HMO and PPO.
HMO and PPO are managed care plans that deliver care from an approved network of care providers in exchange for a lower cost. HMOs are typically less expensive than PPOs. HMOs require you to have a primary care provider (PCP) while PPOs give you more flexibility.
You’ve most certainly heard of HMO and PPO, and probably some other acronyms. You’re perhaps wondering; what are they? What’s the difference between them? Which one is best for me? Well, in this guide, we’ll explain and compare various aspects of these managed medical care plans. At the end of this read, choosing an appropriate health plan should be much easier.
Types of Health Insurance Plans
Here are the five most common types of health insurance plans.
Even though HMOs are the most common type of health insurance plans in the individual health insurance market, this doesn’t mean that there are no other health plans. If anything, PPOs lead the way in the employer-sponsored health insurance market.
Similarly, HDHPs are hugely popular in employer-sponsored health insurance. Many employers consider it a lower-cost health insurance option. Although EPO and POS plans aren’t as common as HMOs, PPOs, and HDHPs, they still offer credible plan options.
What Is HMO?
An HMO health insurance plan is a managed medical care plan based on a network of doctors, specialists, hospitals, and other health care providers. The main idea here is that they all agree to coordinate care with a particular network in return for a certain payment rate for the services that they provide to the patients.
It doesn’t matter how many times a patient visits, HMOs are designed in such a way that health care providers will be paid on a per-member basis. This is one of the main reasons why HMOs are a lot cheaper than PPOs or other managed medical care plans. HMOs are also designed in such a way that there are contracted health care providers known as “in-network” providers.
When you’re covered by an HMO plan, you must select a PCP who will manage and coordinate your health care. The PCP may only refer you to other specialists within that very network of providers. In most cases, you’ll only remain within that network of care unless your PCP authorizes you to see a specialist outside the network. This can happen if the type of care or services that you require cannot be provided with that particular HMO network.
Basic Aspects of HMOs
As noted earlier, HMOs are the most common type of health insurance plans in the individual health insurance market. They cover about 50% of the individual health insurance marketplace and make up nearly 13% of employer-sponsored health insurance plans.
While HMOs are generally known to offer lower premiums than PPOs, you’ll be restricted to a specific network of doctors, specialists, and hospitals. This means that you’ll pay much less in premium for HMOs than PPOs but you’ll sacrifice the flexibility of visiting various doctors.
To put it into perspective, you must choose a PCP who will coordinate your healthcare. He/she will be your primary doctor and you can only see other doctors or specialists with his/her approval. This can be a major drawback in the sense that this plan doesn’t allow you to see doctors outside your network unless it’s an emergency.
You should also keep in mind that HMOs have very low deductibles compared to other health care plans. For example, the average deductible for HMO for individual coverage is about $1,201 while the average deductible for HDHP for individual coverage is $2,303.
So as far as costs are concerned, HMO plans have monthly premiums and deductibles that you must pay before your health insurance begins contributing to your medical bills. But even with that, HMOs are still very low-cost.
Types of HMOs
There are three types of HMOs.
Staff Model or Group Practice Plan – Under this model, the health care providers are paid a specific salary regardless of how many patients they see.
Individual Practice Association – Under this model, health care providers are paid based on the services they offer or the number of HMO patients they see.
Open-ended HMO – This is a hybrid plan that offers the normal fee-for-service coverage to HMO members. If you are enrolled in this plan you can receive benefits of prepaid care but still have the option of seeing other doctors and specialists outside the network. The services covered by an out-of-network doctor are covered by your copayments.
Is HMO the Right Plan for You?
An HMO plan can be a good option for you if you want to pay very low premiums and still not have to deal with high deductibles. It can be a great option if you already have a preferred PCP and he/she is already in the HMO system.
That being said, an HMO may be an ideal option if:
- Your primary care provider is already in an HMO network
- You want lower premiums and don’t mind about the lack of flexibility of going outside the network
- You don’t see many specialists and don’t need regular care or referrals
Advantage of HMOs
HMOs should be a popular choice for you if you’re budget-conscious and do not expect to make many visits to the doctor. Some of the advantages include:
- Lower monthly premiums and out-of-pocket expenses
- Lower drug prescription costs
- You have the convenience of coordinated care led by your PCP
- You don’t have to file claims as care is normally in-network
Disadvantage of HMOs
- You have to stay within the network unless it’s an emergency
- You may have to find a new doctor if your current doctor isn’t part of the HMO network
What is PPO?
A Preferred Provider Organization (PPO) is a type of health insurance plan that gives you the flexibility and freedom of seeking care from any doctor, specialist, or hospital in and out of your network.
There’s a caveat though: care will be very affordable if you seek in-network care. This means that you’ll have to pay more out-of-pocket medical costs if you want to see an out-of-network doctor or specialist.
Basic Aspects of PPOs
As one of the most popular employer-based health insurance plans, PPOs cover about 47% of the employer-sponsored health insurance market and 16% of the individual health insurance market.
Unlike HMOs, you won’t need authorization from a PCP to access an out-of-network doctor. Flexibility is its biggest advantage of this plan as it offers you more choices as far as where and when you receive care are concerned. In essence, it gives you the freedom to get both in-network and out-of-network care.
Unfortunately, PPOs command higher monthly premiums than HMOs and may not be ideal for you if you’re budget-conscious. That being said, PPOs can cost you a lot more if you have medical issues that require regular medical attention.
In terms of cost, PPOs have high monthly premiums in addition to an average annual deductible of $1,204 for an individual coverage plan. Your insurer will begin picking up its portion of coinsurance once you reach your deductible.
PPOs also have out-of-pocket maximums for in-network care and the insurance company will cover all the costs if you reach your out-of-pocket maximum. You have to keep in mind that the out-of-pocket maximum can vary widely, so you need to check such things before enrolling.
Is PPO the Right Plan for You?
A PPO plan can be ideal for you if you have a medical condition that requires you to see a doctor or a specialist regularly. It can be ideal for you if:
- You want to see various specialists without a referral from a PCP
- Flexibility is important to you
- You want lower out-of-pocket costs
Advantages of PPOs
- It gives you the flexibility of using both in-network and out-of-network care providers
- You don’t need any referrals to visit a specialist
Disadvantage of PPOs
- Higher premiums and out-of-pocket costs than HMOs
- You have to manage and coordinate your own care without a PCP
What is an HDHP?
A High Deductible Health Plan (HDHP) essentially refers to a medical insurance plan that has very high deductibles and low premiums when compared to a typical health insurance plan. By enrolling for an HDHP, you’ll pay very low monthly premiums but have higher deductibles. As such, you’ll have to pay a substantial annual deductible for your health care services before the insurer starts paying for any of your health expenses.
In essence, an HDHP can be a very affordable health insurance plan based on the low monthly premiums but the deductibles may be much higher than those in traditional health insurance plans.
Basic Aspects of HDHP
Covering about 31% of the employer-sponsored health insurance market, HDHPs have grown in popularity in the last few years. While HDHPs can be designed in the same way as HMOs and PPOs, the major difference is that it has higher deductibles.
The minimum deductibles for 2021 under the HDHP plans are $1,400 for individual coverage and $2,800 for family coverage. Again, the maximum out-of-pocket expenses that you may have to pay if you want more healthcare services and items are $7,000 for individual coverage and $14,000 for family coverage.
As such, you always have to remember to keep some money if you choose this plan. But once you reach the deductible, the insurance company will start paying for your cover costs while you pay your percentage of coinsurance.
Another interesting aspect of HDHPs is that these plans generally include a Health Savings Account (HSA). The HSA is ideal as it allows you to save money for qualified medical expenses before you’re taxed. This is, in fact, why many employees prefer the HDHP plan. Again, most employers transfer money to employees’ HSA accounts to help in paying for care.
Is the HDHP the Right Plan for You?
An HDHP plan can be ideal if you’re young, healthy, and do not anticipate many health care needs and services within the next year. On the other hand, you should avoid it if you’re old or suffer from various medical issues.
The idea here is that it has lower premiums and can be a cheaper option provided that you won’t need a lot of medical care. You can also consider this option if:
- You have no problem paying upfront and higher deductibles
- You or your family does not need a lot of medical care over the next year
Advantages of HDHPs
- Lower premiums
- Ideal for those who do not anticipate many medical issues for the upcoming year
Disadvantage of HDHPs
- Higher deductibles and out-of-pocket costs
- Not favorable for those with several medical issues
What is EPO?
The Exclusive Provider Organization (EPO) is a managed health care plan that requires you to visit a doctor or go to a hospital within the plan’s network. The fact that you don’t have to choose a PCP or require a referral makes it similar to a PPO. However, you are only limited to receive care from any doctor, specialist, or hospital within that network.
Much like PPO, you do not need approval from any doctor to visit another doctor or specialist. This means that you have the flexibility of dealing with any doctor, specialist, or hospital as long as they’re within your network plan.
Is EPO the Right Plan for You?
This plan can be ideal if you do not have an issue with having a limited number of doctors, specialists, and hospitals that you can visit whenever you have a medical problem. It gives you the flexibility of a PPO but on a limited in-network like an HMO.
Advantages of EPO
- You get the flexibility of visiting a limited number of doctors, specialists, and hospitals
- You don’t need referrals
Disadvantage of EPO
- You are limited to a particular in-network
What is a POS?
A Point of Service (POS) is a type of managed health care insurance plan that combines the features of HMO and PPO. It is based on the idea of lower medical costs in exchange for a more limited choice of healthcare providers.
POS plans have similar rules to HMOs in the sense that you have to choose a PCP who then becomes your “point of service”. The PCP can make referrals to other doctors both in-network and out-of-network, even though the out-of-network doctor might charge a higher fee than an in-network physician.
In terms of similarities, a POS is similar to an HMO in the sense that you must have an in-network PCP who coordinates your medical care needs and must refer you to other doctors both in-network and out-of-network.
On the other hand, a POS is similar to a PPO in the sense that you have the flexibility of accessing both in-network and out-of-network care but you’ll have to pay more if you use out-of-network care.
Is POS the Right Plan for You?
The POS can be the right plan for you if you want a PCP who coordinates your medical care but still wants the flexibility of enjoying both in-network and out-of-network care. You have to keep in mind that you’ll pay higher out-of-pocket costs for out-of-network care. You’ll also have to fill forms and send the bills to your insurer whenever you get out-of-network care.
Advantages of POS
- You get a PCP to coordinate your care
- You can access both in-network and out-of-network care
Disadvantages of POS
- You have to file claims for out-of-network care
- It comes with higher deductibles and out-of-pocket costs than HMO and PPO, especially for out-of-network care.
HMO vs PPO vs Other Plans
As we’ve highlighted, there are major differences between these managed medical care plans. Let’s go into details.
In terms of costs, HMO has the lowest cost (an average monthly premium of $1,212 and an average annual deductible of $1,201) than all other plans. It’s followed by PPO (an average monthly premium of $1,335 and an average annual deductible of $1,204), HDHP (an average monthly premium of $1,061 and an average annual deductible of $2,303), and POS (an average monthly premium of $1,419 and an average annual deductible of $1,714) in that order.
You may be wondering why EPO isn’t included here. Well, the payment scheme for EPO is generally based on fee-for-service arrangements so it’s not possible to quantify the cost before the medical services are rendered.
Network Coverage and Referrals
HMOs are designed in a way that you can only receive in-network coverage unless there’s a medical emergency. You have a PCP who coordinates your care and has to authorize you to get other medical care from other specialists, doctors, and hospitals but within the network plan.
On the other hand, PPOs give you the flexibility of visiting providers both in-network and out-of-network. You do not have a PCP who has to refer you to other physicians. POS is almost a hybrid of HMO and PPO in the sense that you can access both in-network and out-of-network care and has a PCP to coordinate your care.
As far as EPO is concerned, you do not have a PCP to make referrals but can access various doctors, specialists, and hospitals within the same network. In other words, you have the flexibility of accessing various physicians but only on the same network.
Unlike HMO, PPO, POS, and EPO, HDHP is more about the costs of care and not how you receive care.
To this end, it’s easy to see that choosing the right health insurance plan can be overwhelming. However, having an idea of what you’re dealing with is essential in making a sound choice. You should first consider your health care needs, budget, and whether or not the flexibility of visiting various physicians is important to you.
If you want a low-cost plan that offers a doctor to manage your care, then HMO might be the right choice for you. But if you want the flexibility of visiting many physicians and don’t mind paying a bit higher for that flexibility, then PPO and POS plans might be the right choice. Whatever you choose, make sure that it serves you perfectly.