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types of health insurance plans

Understanding the four types of health insurance plans.

Shopping for health insurance or choosing between the options provided by your employer can be complicated. Making the process more complex is distinguishing the pros and cons between plan types.

Health insurance plans come in four types:

Health maintenance organizations
Preferred provider organizations
Exclusive provider organizations
Point of service plans

Factors that distinguishes plan types include:

Whether you’re required to have a primary are a physician
Whether you’re required to obtain a referral before seeing a specialist
Whether certain services must be pre-authorized by the insurer
Whether the plan pays for out-of-network providers
The amount of out-of-pocket costs you’re required to pay

Overview of the four types of plans
Health maintenance organizations (HMOs). This type of health insurance plan is designed to provide care as efficiently as possible for the insurance company. HMOs accomplish this in two ways.

First, they provide a list of care providers, called a network, which the insured must use for all care, except for emergency needs where a network provider may not be accessible. The reason for this is that the HMO has negotiated rates with these physicians.

The second way to manage costs is to have patients use a primary care physician (PCP). Your PCP will provide the majority of your care. He or she will also refer you to specialists when needed. Typically, the insurance company will not cover specialist care unless it’s been referred by the PCP.

HMOs are ideal for individuals who seek lower-cost health services overall or for those who prefer the guidance of a physician in all their care choices. Aside from having to choose providers in the network, there are few other limitations. About a third of all health plans used are HMOs.

Preferred provider organizations (PPOs). PPO plans offer more flexibility than HMOs. Like HMOs, they group care providers within a network where a fee schedule has been worked out in advance. The difference is that you maintain the option of using physicians outside the network. Doing so raise the cost of care through higher copayments, higher deductibles and/or a lower percentage of costs the insurer will cover.

Another difference between these plans and HMOs is that PPOs do not require a primary care physician. This means you do not need a referral before seeing a specialist; however you will pay more for seeing an out-of-network specialist. Some PPOs also require pre-authorization from the insurance company before seeing a specialist.

In exchange for this flexibility, PPOs tend to charge higher premiums than HMOs. They are ideal for patients who need or want more provider options, whether it’s because the patient lives in a remote area or has to see several different specialists.

Exclusive provider organizations (EPOs). EPOs are the most restrictive type of health care plan. As such, they are among the least used, account for less than 10 percent of health insurance plans.

Like HMOs, EPOs require patients to limit their care to in-network providers. This often includes emergency care.

They are similar to PPOs in that they don’t employ primary care physicians, and you do not need a referral to see a specialist.

EPOs allow insureds to lower their care costs. In exchange, however, finding care providers will require more legwork. Because of the limited number of available in-network carriers, EPOs tend to only be a good option for people living in large cities and metro areas.

Point of Service plans (POS). This type of plan most resembles an HMO but has less restrictions on receiving care from out-of-network providers. Any specialized care, however, will require a referral from a primary care physician. POS plans are great for people worried about unpredictable non-network charges.

Choosing which type of plan is best for you and/or your family involves balancing the importance of flexibility and cost. The more a plan limits your choices, the less it will cost in premiums and out-of-pocket expenses. At the same time, you’ll want to consider whether you’re prepared for the extra work of receiving pre-authorization and finding in-network providers.