Guide To Health Insurance.org

Managed care organizations control their costs by placing agreements with
doctors, hospitals, clinics, and other providers. Since the practitioners are
guaranteed a certain amount of business, they are willing to provide services at
a reduced cost. They differ from indemnity plans because they may have
restrictions placed on patients that only allow them to see practitioners within
the network. If the patient wants to see a doctor from outside the network, he
typically must pay for services himself.

While indemnity plans give you the choice to see whoever you want, HMO managed care programs typically have less paperwork involved, and less out-of-pocket costs that must be paid by the patient.

In an effort to take advantage of the strengths of both managed care and indemnity options, PPO and POS insurance plans emerged. These are technically considered managed care plans, but they are really hybrid products which truly blur the lines between managed care and indemnity insurance.

Preferred Provider Organizations (PPO)

A PPO is the managed care insurance product that functions the most like an indemnity plan. It works the same as an HMO in its conception: The PPO negotiates contracts with doctors, hospitals, etc., in order to build a network of services who will accept lower fees. If you visit a physician from within that provider network, the plan will pay for it, but you might be responsible for a small co-payment.

The aspect that is like an indemnity plan is that you then have the option to see a provider from outside of the network and still retain partial coverage. It is likely you will pay a deductible, but PPOs will typically pay for 60-75% of the charges for visiting an out-of-network provider, depending upon the plan you've chosen. Additionally, you have the option to refer yourself to the physician of your choice, from inside or outside the network, without having to first see your primary care physician. This combines the savings of a managed care product with the self-directed choice of indemnity insurance.

Point of Service (POS)

In response to criticism concerning plan flexibility and options, many HMOs have come to offer POS plans. This provides the ability for plan members to self-direct their own care, effectively making it a working indemnity type option. With the point of service plan, there are tiered levels of service from which you can choose each time you reach the point of service. There are typically three options to choose from with POS plans.

You can see an HMO physician, and your insurance will pick up the tab. Or, if there is also a PPO network, then you can see one of those practitioners, provided you're willing to pay, depending on plan design, either a co-payment or possibly a coinsurance amount. Lastly, you can choose to see a practitioner completely outside the network, and it will be processed in a manner typical of an indemnity plan - you may have a deductible, and coinsurance to pay.

If your primary care physician refers you to a doctor within the network, the plan will pay for it. If he refers you out of network, the plan will pay part of the bill. Lastly, if you refer yourself out of network, you will be responsible for paying coinsurance.

POS plans offer the savings of managed care with the self-directed control of indemnity plans. They are complex products, best suited for a sophisticated user who understands how to take advantage of the economics of the plan when deciding where to seek care and how to pay for it.