Health insurance plans have been forced to take action to contain costs of quality health care delivery as health care costs have skyrocketed. Health insurance premiums, deductibles and co-pays have steadily increased, and health insurance companies have implemented certain strategies for reducing health care costs. “Managed care” describes a group of strategies aimed at reducing the costs of health care for health insurance companies. There are two basic types of managed care plans: health maintenance organizations, or HMOs, and preferred provider organizations, or PPOs.
What do HMOs and PPOs Cover?
Both HMOs and PPOs contain costs by contracting with health providers for reduced rate on health care services for its’ members, often as much as 60%. One important difference between HMOs and PPOs is that PPOs often will cover the costs of care when the provider is out of their network, but usually at a reduced rate. On the other hand, most HMOs offer no coverage for health care services for out-of-network providers. Here are some important factors to consider about both plans:
- Just in the recent years, HMOs have decided to try to stand against other insurance companies. They now cover care outside of their own clinics and systems, with sizable deductibles and copayments.
- PPOs can be established by an individual or by a preferred insurance company. This allows room to get more advice and opinions on certain decisions when trying to pick the best options of coverage.
What is a PCP?
Both HMO and PPOs also control health care costs by use of a gateway, or primary care provider (PCP). Health insurance plan members are assigned (or select) a primary care practitioner (physician, physician assistant, or nurse practitioner). Usually, a family practitioner or internal medicine doctor for adult members or a pediatrician or family care practitioner for children. The primary care provider is responsible for coordinating health delivery for plan members. Care by specialist physicians require referral from the primary care provider.
This cost containment strategy is intended to avoid duplication of services (for example, the cardiologist ordering tests that have already been done by the PCP, or a sprained ankle being referred to an orthopedic) and avoid unnecessary specialist referrals, tests and/or procedures.
What do HMOs and PPOs Require?
HMO and PPO plans also contain costs by requiring prior approval, prior authorization, or pre-certification for many elective hospital admissions, surgeries, costly tests and imaging procedures, durable medical equipment, and prescription drugs. When such services are required, the provider must submit a request to the health insurance plan review department, along with medical records that justify the service. The request is reviewed by the health insurance company to determine whether the services are justified as “medically necessary” according to the health plan policy and guidelines. Review is usually performed by licensed nurses, and, if the reviewer agrees that the service is necessary, approval is given, and the service will almost always be covered by the health insurance plan.
As health care costs continue to rise, many indemnity health insurance plans, or “fee for service” plans are being forced to adopt some managed care strategies to provide quality health care and keep health insurance premiums affordable. And as long as health care costs continue to rise, the distinctions among PPO, HMO, FFS and other health insurance plans may become blurred. Rest assured, however, that managed health care is here to stay.