People shopping for individual or family health insurance often find themselves awash in an alphabet soup of health care insurance acronyms—HMO, HSA, MSA, PPO, POS. These acronyms stand for important and valuable organizations and programs, but most consumers focus on the two most widely used health care insurance systems—HMOs and PPOs. Here is a brief overview these popular options:
HMO is an acronym for Health Maintenance Organization. An HMO is an organization delivers medical services through a network of healthcare professionals who follow specific guidelines for care and costs. By allowing the HMO to manage care, the participating physicians and related healthcare professionals receive a steady flow of patients through the HMO. A consumer who obtains care through an HMO must receive services from the healthcare professionals in HMO network. Otherwise, the HMO will not cover the medical expenses. The HMO manages policyholder care through a main point of contact—the primary care physician—who provides care and makes referrals when necessary.
The major benefit of an HMO is affordability. By managing care through the primary care physician, the HMO can contain many costs and offer lower premiums. To help keep premiums low, HMOs require members to pay a flat fee—a co-payment or co-pay—when obtaining many services, including doctor office visits and prescription medications. HMOs also control costs by emphasizing wellness over treatment. By promoting preventative measure such as screenings, mammograms, and PAP smears, the HMO is able to detect and arrest medical conditions before they become more costly to treat. HMOs also cover medical services such as vision care, dental care, and psychiatry.
PPO is an acronym for Preferred Provider Organization, Preferred Provider Option, or Participating Provider Organization). These three acronyms refer to an organization that delivers services through a network of affiliated healthcare professionals. Like an HMO, a PPO contracts with doctors and other healthcare professionals to follow basic guidelines for care and costs in exchange for a steady flow of patients. Also similar to HMOs, PPOs lower costs by emphasizing preventative care, such as physicals, mammograms, PAP smears, colonoscopies, and other procedures that detect and arrest medical conditions before they become more serious and more costly to treat.
The primary difference between an HMO and PPO concerns care obtained outside the PPO’s network of “preferred” providers. A PPO will pay for care obtained outside the network; an HMO will not. A PPO pays a lower portion of the costs incurred outside the network than it does for expenses from within the network, but it still pays a large portion of an out-of-network bill. Because of this policy, members of a PPO plan have the freedom to visit any doctor or specialist without needing a referral. This flexibility a major benefit for people who want to maintain a relationship with a specialist who is outside the network of preferred providers.
HMOs and PPOs both provide coverage of prescription medications. To manage costs, some PPOs and HMOs cover both brand name and generic medications, while other plans cover only generic drugs (when available). If no one in your family requires prescription drugs, you might be able to enroll in a plan that does not cover medications, further reducing premiums.