You can’t choose the best health insurance for you and your family if you don’t understand the difference between an HMO, PPO, EPO and POS health plan.
In order to choose the best type of health plan for your situation, you need to understand the six important ways health plans can differ and how each of these will impact you. Next, you need to learn how HMOs, PPOs, EPOs and POS plans each weigh in on those six comparison points.
Points of Comparison: 6 Ways Health Plans Differ
The six basic ways HMOs, PPOs, EPOs and POS plans differ are:
- Whether or not you’re required have a primary care physician.
- Whether or not you’re required have a referral to see a specialist or get other services.
- Whether or not you have to have health care services pre-authorized.
- Whether or not the health plan will pay for care you get outside of its provider network.
- How much cost-sharing you’re responsible to pay when you use your health insurance.
- Whether or not you have to file insurance claims and do paperwork.
Understanding the Primary Care Physician Requirement
Some types of health insurance require you to have a primary care physician, otherwise known as a PCP. In these health plans, the role of the PCP is so important that the plan will assign a PCP to you if you don’t quickly choose one from the plan’s list.
In these plans, the PCP is your main doctor and also coordinates all of your other health care services. For example, your PCP coordinates services you need like physical therapy or home oxygen. He or she also coordinates the care you receive from specialists.
Because your PCP decides whether or not you need to see a specialist or have a specific type of health care service or test, in these plans your PCP acts as a gatekeeper controlling your access to specialty health care services.
In plans without a PCP requirement, getting access to specialty services may be less of a hassle, but you have more responsibility for coordinating your care.
Understanding the Referral Requirement
Generally, health plans that require you to have a PCP also require you to have a referral from your PCP before you see a specialist or get any other type of non-emergency health care service. Requiring a referral is the health insurance company’s way of keeping costs in check by making sure you really need to see that specialist or get that expensive service or test.
Drawbacks to this requirement include delays in seeing a specialist and the possibility of disagreeing with your PCP about whether or not you need to see a specialist.
Benefits to the requirement include assurance that you’re going to the correct type of specialist, and expert coordination of your care. If you have a lot of specialists, your PCP is aware of what each specialist is doing for you and makes sure the specialty-specific treatments aren’t conflicting with each other.
Understanding the Pre-Authorization Requirement
A pre-authorization or pre-approval requirement means the health insurance company requires you to get permission from it for certain types of health care services before you’re allowed to get that care. If you don’t get it pre-authorized, the health plan can refuse to pay for the service.
Generally used in plans that don’t require you to have a PCP, pre-authorization is how health plans keep costs in check by making sure you really need the services you’re getting. In plans that require you to have a PCP, the PCP is responsible for making sure you really need the services you're getting. Plans that don't require a PCP use pre-authorization as a mechanism to reach the same goal: the health plan only pays for stuff that's medically necessary.
Plans differ as to what types of services must be pre-authorized, but almost universally require that non-emergency hospital admissions and surgeries be pre-authorized. Many also require pre-authorization for things like MRI or CT scans, expensive prescription drugs, and medical equipment like home oxygen and hospital beds.
Pre-authorization takes time. Sometimes it goes quickly and you'll have the authorization before you even leave the doctor's office. More often, it takes a few days. In bad cases, it can take weeks.
Understanding Out-Of-Network Care
HMOs, PPOs, EPOs and POS plans all have provider networks. This network is a list of doctors, hospitals, labs and other providers that either have a contract with the health plan or, in some cases, are employed by the health plan. Plans differ as to whether you’re allowed to get health care services from providers who aren’t in their network.
If you see an out-of-network doctor or get your blood test done at an out-of-network lab, some health plans won’t pay. You’ll be stuck paying the entire bill for the care you got out-of network. The exception to this is emergency care. Most plans will cover emergency care received in an out-of-network emergency room as long as the health plan agrees that the care was truly necessary.
In other plans, the insurer will pay for out-of-network care. However, you’ll have to pay a larger percentage of the cost than you would have paid if you’d gotten the same care in-network.
Cost-sharing involves you paying for a portion of your own health care expenses—you share the cost of your health care with your health insurance company. Deductibles, copayments and coinsurance are all types of cost-sharing.
Health plans differ in what type and how much cost-sharing they require. Generally, more restrictive health plans reward you with lower cost-sharing requirements, while more permissive health plans require you to pick up a larger part of the bill through higher deductibles, coinsurance or copayments.
Who Files the Insurance Claims?
If you get care out-of-network, you’re usually responsible for filing the claim paperwork with your insurance company. If you stay in-network, your doctor, hospital, lab, or other provider will file any necessary claims.
In plans that don’t cover out-of-network care, there usually isn’t any reason to file a claim unless you received emergency care out-of-network.
So, Which Type of Plan Does What?
Health insurance regulations vary from state to state and sometimes a plan won’t stick rigidly to a typical plan design. So, use this table as a general guide, but read the fine print on the Summary of Benefits and Coverage for each plan you’re considering before you enroll. That way you’ll know for sure what each plan will expect from you, and what you can expect from it.
|Requires pre-authorization||Pays for out-of-network care||Cost-sharing||Do you have to file claim paperwork?|
|HMO||Yes||Yes||Not usually required. If required, PCP does it.||No||Low||No|
|POS||Yes||Yes||Not usually. If required, PCP likely does it. Out-of-network care may have different rules.||Yes, but requires PCP referral.||Low in-network, high for out-of-network.||Only for out-of-network claims.|
|PPO||No||No||Yes||Yes||High, especially for out-of-network care.||
Only for out-of-network claims.
What All of the Acronyms Mean
HMO stands for health maintenance organization. HMOs tend to have low monthly premiums and low cost-sharing, but they require PCP referrals and won’t pay for care out-of-network except in emergencies. Learn more about HMOs in "What's an HMO & How Does It Work?" and "How To Get the Most From Your HMO."
PPO stands for preferred provider organization. PPOs got that name because they have a network of providers they prefer that you use, but they’ll still pay for out-of-network care. Given that they’re less restrictive than most other plan types, they tend to have higher monthly premiums and require higher cost-sharing. Learn more about PPOs in "What's a PPO & How Does It Work?" and "How To Get the Most From Your PPO."
EPO stands for exclusive provider organization. EPOs got that name because they have a network of providers they use exclusively. You must stick to providers on that list, or the EPO won’t pay. Think of an EPO as similar to a PPO but without the perk of out-of-network care. Learn more about EPOs in "EPO Health Insurance—What It Is & How It Works and "EPO Health Insurance—How It Compares to HMOs & PPOs."
POS stands for point of service plan. POS plans resemble an HMO but are less restrictive in that you’re allowed, under certain circumstances, to get care out-of-network like with a PPO. Like HMOs, many POS plans require you to have a PCP referral for all care whether it’s in or out-of-network.
Which Is Best, an HMO, PPO, EPO or POS?
It depends on how comfortable you are with restrictions and how much you’re willing to pay. The more a health plan limits your freedom of choice, say by not paying for out-of-network care or by requiring you to have a referral from your doctor before you see a specialist, the less it will generally cost in premiums and in cost-sharing. The more freedom of choice the plan permits, the more you’re likely to pay for that freedom.
Your job is to find the balance you're most comfortable with. If you want to keep your costs low and don't mind the restrictions of having to stay in-network and having to get permission from your PCP to see a specialist, then perhaps an HMO is for you. If you want to keep costs low, but having to get a referral for a specialist irks you, consider an EPO.
If you don't mind paying more, both in monthly premiums and cost-sharing, a PPO will give you both the flexibility to go out-of-network and to see specialists without a referral. But, PPOs come with the extra work of having to get pre-authorization from the insurer for expensive services.
The bottom line: there's no perfect health plan type. Each type is just a different balance point between benefits vs restrictions, and between spending a lot vs spending less.