There are several major types of health insurance plans, and it is important to understand them not only as healthcare professionals but also as consumers making coverage decisions. Common options include PPOs, EPOs, and HMOs. A PPO, or Preferred Provider Organization, is a network of doctors and hospitals that agree to provide care at discounted rates. PPOs offer flexibility by allowing you to see providers outside the network, though you usually pay less when you stay in network.
An EPO, or Exclusive Provider Organization, is similar to a PPO but with stricter rules. Under an EPO, coverage is generally limited to providers within the plan’s network, except in emergencies. HMOs, or Health Maintenance Organizations, operate differently. They typically require you to choose a primary care physician who acts as a gatekeeper. Referrals are often needed to see specialists, which can reduce costs but also add friction and limit flexibility for patients.
High deductible health plans are not a separate network type but rather a designation set by the government. A plan qualifies as high deductible based on meeting minimum deductible thresholds, often around $2,500 for an individual. These plans usually come with lower premiums but higher out-of-pocket exposure if significant care is needed. They tend to work best for people who expect lower healthcare usage in a given year. A key advantage is eligibility for a Health Savings Account, which allows contributions that grow tax-protected and can be used tax-free for qualified medical expenses, helping offset the higher deductible over time.
HIGH DEDUCTIBLE HEALTH PLANS VS. PPO
Dr. Jim Dahle:
There are a number of different types of health insurance. And it's important for doctors to understand all of them, not just because they're doctors and getting paid by these health insurance plans, but because they're also consumers, and they have to make decisions about their health care plans.
A common question I get these days is, “Should I use this PPO plan or should I use this high deductible health plan?” And I think it's important to understand the differences between the various kinds of health insurance plans and organizations. PPO stands for Preferred Provider Organization. It's sometimes called a Participating Provider Organization or Preferred Provider Option, all to keep the acronym the same.
But it's a managed care organization of doctors, hospitals, and other health care providers who have agreed with an insurer or a third-party administrator to provide health care at reduced rates to the insured or administrator's clients. And that's what a PPO is.
And sometimes that's contrasted with an EPO. An EPO is an exclusive provider organization. Very similar to a PPO. But unlike EPO members, PPO members are reimbursed for using medical care providers outside of their network of designated doctors and hospitals. EPO, you can only use the ones on the health plan. A PPO, you just pay less if you use the ones that the insurance company has chosen.
It's also often contrasted with a Health Maintenance Organization or an HMO. These really came around in the 1990s when they were talking about making pretty significant changes to our health care system. Unlike PPOs, HMOs often require members to select a primary care physician. And that doctor then acts as a gatekeeper to direct access to any sort of non-emergency medical services. And they often have to get a referral from the PCP before they can go see any sort of a specialist.
And so, the idea is to lower the cost. And HMOs often do have a lower cost than a PPO, but they're a little bit more of a pain for you as a consumer to work with because you got to go get these referrals and maybe you're discouraged from seeing as many specialists, et cetera, but the cost might be lower overall.
You notice I have not yet talked about a high deductible health plan option because technically all of these could be a high deductible health plan option. It's the government that designates what a high deductible health plan is. The government says you're an HDHP, you are. The government says you aren't, you aren't.
Typically what that means though these days is that you have a deductible of at least $2,500. That's for a single person, sometimes higher if you're a family. And the idea behind that is that you have more skin in the game and maybe you'll be a little bit more judicious with how much healthcare you consume.
Often when people are comparing a PPO to a high deductible health plan, whether that high deductible health plan is a PPO, an EPO or an HMO, they're looking at, “Okay, am I going to be a high consumer of healthcare? In which case I'll be on this PPO plan and I'll have a relatively low deductible. Or am I going to be a low consumer of healthcare? In which case, well, I'll get the high deductible health plan and have lower premiums.”
Usually you come out ahead unless something catastrophic happens and maybe that year you end up paying your out-of-pocket max, which is usually higher on a high deductible health plan option.
The other benefit, of course, of a high deductible health plan is it allows you to make HSA contributions, your health savings account. And those dollars, of course, grow in a tax-protected way and can come out of the account tax-free to pay for healthcare. While you don't necessarily want to choose a high deductible health plan just so you can use an HSA, it does help defray the additional cost because you're getting those tax and investing benefits as you go along with the high deductible health plan.
I hope that summary of how these various health plans works will help you to understand and make the important decision of what kind of health insurance plan you're going to use for the coming year.
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