Types of Health Insurance Plans and Networks
Learning about health insurance plans and networks may not be fun, but it’s necessary if you’re the one choosing and using the plan. There are several types of insurance plans, but they all have some things in common. They all have premiums, which is the amount you pay (per month usually) to have the insurance. Most plans also require copayments—or copays—and have deductibles. Copays are flat fees you pay at the time of service. Deductibles are amounts you must pay for covered services before your insurance starts to pay. Some plans also have coinsurance. This is usually a percentage, such as 20%, you must pay for services after you have met your deductible.
It’s easier to compare, choose and use the plan when you know what you’re getting, including the plan’s provider network and out-of-pocket costs.
Managed Care Plans
Managed care plans have provider networks. Networks are groups of doctors, hospitals, and other providers and suppliers that deliver services to members of the plan. In-network providers have contracts with the plan outlining rates for covered services. These are usually discounted rates, which save money for both the plan and the patient. Some plans let you visit out-of-network providers, while others do not. However, seeing an out-of-network provider will cost you more, even if the plan allows it.
Having provider networks allows these plans to manage the healthcare of enrollees and control costs. As a result, these plans are more affordable than traditional health insurance (which has few restrictions, see Fee-for-Service Plans). However, flexibility is the cost for affordability. All managed care plans place restrictions on how you use healthcare or how much you pay for it. Generally, plans with fewer restrictions are more expensive.
Managed care plans have been around for many decades. Their popularity grew in the 1990s in response to ‘runaway’ healthcare costs. However, the public was dissatisfied with policies it viewed as severe and overly strict. States responded by passing laws setting managed care standards. The result was managed care plans that are more responsive to different healthcare needs. Today, managed care plans are the most prevalent healthcare coverage in the United States. Nearly 200 million Americans use a managed care plan for their healthcare. This includes people who use employer-based healthcare and those with public coverage, such as Medicare and Medicaid.
Health Maintenance Organization (HMO)
HMOs are the most restrictive type of managed care plan. You must choose an in-network primary care provider (PCP) who coordinates your care. PCPs function as healthcare gatekeepers. You must see your PCP for referrals to specialists. HMOs generally won’t cover services if you use an out-of-network provider or fail to get a referral. Emergency medical care is an exception.
An HMO health plan is usually the most affordable managed care option. These plans tend to have low premiums and will cover most of your expenses after you meet your deductible. However, your deductible and copays may be higher than other plans. This type of plan may work well for someone who does not use healthcare very often.
Exclusive Provider Organization (EPO)
An EPO health plan also restricts the providers you can see, but offers more freedom than an HMO. You still have to choose your doctors, including your PCP, from the plan’s network. However, you may not need a referral to see a specialist. As long as you see an in-network specialist, the plan will cover the services. The plan may not pay for services from an out-of-network provider, except for emergency medical care.
EPOs can still be very affordable, despite the increased flexibility. EPO premiums can be higher than an HMO, but are typically lower than plans with even fewer restrictions. An EPO may suit someone who doesn't use much healthcare, but desires more control over it.
Point of Service (POS)
A point-of-service health plan is a hybrid managed care plan. Like an HMO, you must choose an in-network PCP. Some plans require PCP referrals to see a specialist, while others do not. With POS, you can choose an out-of-network specialist if you want. While the plan will cover out-of-network care, you will pay more for it compared to seeing an in-network specialist. Plans may have higher copays and deductibles for out-of-network care. They may also charge a coinsurance if you go outside the network.
POS plans can be more expensive than HMOs and EPOs because they control less of your healthcare choices. They may be a good choice for someone who wants the freedom to go out-of-network, but still wants to save money on premiums.
Preferred Provider Organization (PPO)
PPOs are by far the most popular type of managed care plan. Nearly half of people who use employer-based insurance opt for a PPO. They offer the most freedom in choosing your providers and usually have larger networks than other plans. You can choose an in-network or out-of-network PCP.
You do not need referrals to see a specialist, either in-network or out-of-network. However, like POS plans, you will pay more for out-of-network care. This may include balance billing—when the provider bills you for the difference between their customary charge and what your insurance pays.
PPO premiums are usually the most expensive. However, your out-of-pocket expenses—copays, deductibles and coinsurance—can be lower, especially for in-network care. A PPO health plan may be the better choice for someone who uses healthcare regularly and desires flexibility.
Fee-for-service plans are the oldest type of health insurance model. Other names for these plans are traditional health insurance and indemnity plans. There are no networks or restrictions, so you can choose whatever doctor, hospital, or other provider you please. Providers do not have contracts to deliver services. Instead, they bill for each separate service. Therefore, there is no incentive to contain costs.
An indemnity plan or fee-for-service plan is the most expensive health insurance option. It also requires significant out-of-pocket resources. Usually, you pay for services yourself and submit a claim for reimbursement. The plan will pay you back for a set portion of the cost. Like other plans, you still have premiums, copays, deductibles, and possibly coinsurance.
This is the least common type of health insurance plan. Less than 1% of people who get health insurance through their employer use indemnity plans. You can also purchase private indemnity insurance on your own. If you can afford it, an indemnity plan offers complete freedom and control over your healthcare.