Let's face it -- health insurance plans are complicated. Before you can decide what plan best suits your needs, you should have a well-rounded knowledge of the different types of plans. Preferred provider organizations (PPOs) are the fastest-growing kind of health care plan. With more than 158 million Americans enrolled in a PPO this year, this plan has become the choice of more than half of all Americans with health insurance coverage [source: AAPPO]. In this article, we'll take a closer look at PPOs to find out why they've become such a popular option.
A PPO is a type of managed-care system in which health care providers, such as doctors and hospitals, have made an agreement with the insurance companies to offer substantially discounted fees to the company's members. The system has a kind of "you scratch my back and I'll scratch yours" feel to it. The health insurance company gets a discount from the provider, which theoretically is passed along to you, and in return the provider gets a much larger group of patients to bill. The result is a trickle-down effect of savings for the consumer. The customer gets discounted rates at the doctor's office, the doctor gets a guaranteed supply of patients and the insurance company gets premiums from a larger number of customers.
PPOs offer a few advantages over their counterparts. Most often cited is the amount of freedom they offer. Unlike other managed health care organizations, a PPO does not require you to maintain a primary care physician (PCP), nor does it require you to use your PCP as a gatekeeper. This means that you can seek care from a specialist without first getting a referral. Also, you have the freedom to choose care from a provider outside of the provider network should you require it -- the expenses can be substantially higher, but you at least have the option to choose any doctor or hospital you like.
PPOs vs. Other Health Care Plans
We often have to pay for our freedom, and health coverage is no exception. This is an equation most of us are familiar with: The more choice you have in determining your own doctors, treatments and hospitals, the more you'll have to pay. Conversely, if you exchange that high premium for a low one, your freedom of choice gets smaller. Health maintenance organizations (HMOs) are notoriously stringent but exceptionally affordable. Traditional fee-for-service plans offer the most freedom, but at a much higher expense. Many people think of PPOs as the happy medium. Perhaps what people find most alluring about PPOs is the balance between freedom and cost.
While it is easy to confuse the two, there are some key differences between PPOs and HMOs. PPOs utilize a networking method similar to HMOs, but with a much larger network and a smaller monetary penalty for seeking care outside the network. As long as the provider is part of the network, your benefits are the same. In addition, in a PPO you are free to choose any provider you wish, but you should be prepared to pay more for it. A HMO, on the other hand, will not pay for out-of-network services.
A point of service plan (POS) combines the formulas used by HMOs and PPOs. Like in an HMO, a PCP must refer you to in-network specialists. When receiving care from a provider within the network, you are responsible for a small co-payment, but there is no deductible. It is when you go outside of your network that a POS acts more like a PPO. A POS will allow you to self-refer outside the network. In this scenario, you must first pay the deductible, then coinsurance. In this way, the POS offers a strong financial incentive to remain within the network, but does not forbid it the way an HMO would.
Of course, there is no single PPO plan. It seems there are as many differences in benefits and coverage offered as there are customers. Your plan's benefits will depend on any number of factors, including the amount you pay in monthly premiums, the amount of coinsurance you're obliged to pay, whether or not you seek treatment from within the network, and the amount of your yearly deductible. But a good rule of thumb to keep in mind is this -- you get what you pay for.
For more information about preferred provider organizations, check out the links on the next page.
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More Great Links
- American Association of Preferred Provider Organizations. http://www.aappo.org
- Kids and Managed Care Options. http://www.uic.edu/sph/cade/kidsmco/
- Agency Info: HMOs, PPOs and POSs. http://www.agencyinfo.net/iv/medical/types/hmo-ppo-pos.htm