| In today's health insurance marketplace, three primary | | | | care). The policyholder can only see a specialist, use a |
| types of healthcare coverage are available. They are | | | | lab service or check into a hospital if they are referred |
| the Indemnity plan, the Preferred Provider Organization | | | | for such services by the PCP. Any services that are |
| (PPO), and the Health Maintenance Organization | | | | not referred by the consumer's PCP are not |
| (HMO). Each approach offers consumers the | | | | reimbursable under the health insurance policy. Within |
| opportunity to choose between flexibility and control in | | | | the HMO network, healthcare providers agree with the |
| their healthcare choices vs. the expense of their | | | | insurance company on negotiated rates for specific |
| healthcare coverage. Almost universally, healthcare | | | | services. Once approved, these healthcare providers |
| plans that offer more consumer flexibility and control | | | | become part of the network available to the PCP for |
| are also more expensive, while plans allowing the | | | | referring patients when additional care is required. |
| insurance company to control healthcare delivery | | | | Based on the insurance company's strict control of the |
| choices are usually more affordable. Let's look at each | | | | healthcare providers used and the rates they will |
| of these plans. | | | | charge, an HMO is usually the least expensive |
| The Indemnity plan approach represents healthcare as | | | | alternative for a healthcare plan. |
| it was offered in the days before managed care. In an | | | | In the middle between the wide-open Indemnity plan |
| Indemnity plan, the policyholder is free to go to any | | | | and the strictly-controlled HMO, insurance companies |
| doctor, specialist, hospital or laboratory to pursue the | | | | also offer a third alternative called a Preferred |
| medical care they believe they need. These healthcare | | | | Provider Organization or PPO. In a PPO plan, a |
| services are billed to the insurance company at the | | | | policyholder is free to go to almost any healthcare |
| individual rate set by the healthcare provider. The | | | | provider they choose, including doctors, specialists, labs |
| insurance company pays a fixed proportion of the | | | | and hospitals, and usually without a medical referral. |
| fees (usually 80%) and the consumer pays the | | | | However, the amount reimbursed by the insurance |
| remaining percentage (usually 20%) of the billed | | | | company for the delivered medical services will vary |
| medical fees. Each healthcare provider is free to set | | | | depending on whether the healthcare provider is within |
| their fees at a level they choose, and the consumer | | | | their negotiated network or not. As with an HMO, the |
| has little incentive to consider overall medical expenses. | | | | insurance company negotiates fees in advance with |
| While Indemnity plans are still available today, they are | | | | selected healthcare providers and approves them for |
| not widely utilized since they are too expensive for the | | | | inclusion in the plan's preferred provider network. |
| average consumer. The monthly premium for an | | | | Healthcare services delivered by these in-network |
| Indemnity plan is generally 50% to 100% higher than | | | | providers are generally reimbursed to the consumer at |
| premium for a PPO or HMO plan. | | | | high rates of 70% or more. On the other hand, when |
| On the opposite end of the spectrum, Health | | | | the consumer uses a non-network healthcare provider, |
| Maintenance Organizations or HMOs were introduced | | | | the reimbursement will be much lower, ranging from |
| by insurance companies as a way to combat the | | | | 0% to 50% of the incurred medical expenses. Since |
| rising costs of healthcare being experienced by | | | | the vast majority of PPO policyholders use in-network |
| employers providing health benefits to their employees. | | | | providers to reduce their out-of-pocket expenses, |
| In an HMO, the policyholder selects or is assigned to a | | | | PPOs are very cost-effective for insurance |
| Primary Care Provider (PCP) such as a family | | | | companies. As a result, PPOs are somewhat more |
| practitioner, internist or pediatrician. The PCP is | | | | expensive than HMOs, but are still very reasonably |
| responsible for coordinating all healthcare services | | | | priced for the average person. |
| delivered to the policyholder (except for emergency | | | | |