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Health Insurance Basics

Disclaimer: This discussion is designed to provide very basic, easily understandable and comparative information regarding PPO and HMO plans and should not be viewed as a representation of any specific terms, conditions, benefits, limitations or exclusions of any particular health insurance company or product. All terms and conditions as well as benefits, limitations and exclusions are contained in each company's plan documents.


So, what is a PPO Health Insurance Plan?

A Private Practice Organization (PPO) health insurance plan relies on a large number of private-practice physicians, laboratories, outpatient surgery, private care facilities and hospitals that execute compensation agreements with health insurance companies to provide services for a fixed fee that is generally lower than a patient would otherwise pay. There is, of course, strength in numbers when negotiating fees for medical services. With millions of PPO plan subscribers nationwide, there is a very real and reasonable expectation that providers will benefit in the form of increased business by contracting with insurance companies and many therefore do.

As consideration for accepting lower contracted rates as full payment for services they provide, providers are listed in insurance company directories and patients are more likely to seek services from an in-network provider because it reduces the cost for services to the subscriber. PPO plans are generally less restrictive than HMO plans and there is far more freedom when it comes to choosing a health care provider. Many plans have a list of in-network "preferred participating providers" and choosing such a provider can often be cheaper for the patient. Some plans provide full or partial prescription drug benefits, while others do not. With most PPO plans (except the cheapest and most restrictive plans), it is still possible to seek out health care providers who are not contracted with the insurance company and still receive at least partial coverage.

This partial coverage takes many forms depending on the type of coverage purchased. For example, in a comprehensive PPO plan with a $20.00 co-payment where the deductible has already been met, an in network provider may charge $300.00 for services rendered in addition to the co-payment. The contracted rate however, may be only $140.00, whereby the insurance company pays 80% of the contracted rate, and the patient is required to pay 20% until the annual out-of-pocket maximum is reached. In this case then, the total cost for services rendered would be the $20.00 co-payment plus 20% of the contracted rate, which would total $48.00. Because of the contract executed between the provider and the insurance company, the remaining balance is your savings and cannot be billed to you. Now compare this with an out of network provider. In this case, the company may only pay 60% of what their usual contract rate is for the service.

So, for the same services from an out of network provider, the insurance company would pay only $84.00 and because the provider does not have a contract with the insurance company, the provider could bill the patient for the outstanding balance of $216.00 plus the $20.00 co-payment. Co-payments for office visits are often higher than with HMO plans and one may need to pay a percentage of the cost of lab and diagnostic tests, and hospitalizations under a PPO plan. However, these expenses are subject to annual maximum out of pocket limitations, which can vary from plan to plan, from as low as $1,000.00 to $10,000.00 and higher. With health care costs on the rise, rapidly so in some areas of the country, so-called "catastrophic health care coverage PPO plans" have become more popular featuring higher annual deductibles and out of pocket maximums, as well as other restrictions, in return for a much lower premium. In many cases, high annual deductibles of up to $3,500.00 must be fully met by the subscriber BEFORE the insurance company pays one dime.

Other plans such as Medical savings account compatible plans may provide self-employed and other subscribers with certain tax advantages. Most companies offer 20-30 different plans with varying degrees of coverage and it can be very confusing when one is first confronted with the number of choices. Another advantage of PPO plans is the lack of a "primary care physician", for want of a better descriptor. With PPO plans, one does not need to visit a primary care provider before seeing a specialist. (Of course, specialists such as cardiologists may charge more for their services and it is often a good idea to visit with a general practitioner to discuss any ailments first) PPO plans are often preferred by people who have already established relationships with primary care providers that are important to them, and / or, who enjoy flexibility and a degree of autonomy in selecting their health care providers. One must, however, be willing to pay more for this flexibility and choice.


What is an HMO Plan?

A Health Maintenance Organization is comprised of company owned health care groups, hospitals and other facilities with salaried staff providers and / or a collection of health professionals and providers who work for a pre-agreed, set fee on behalf of a HMO. Some HMO's also utilize a mixed model Health Plan comprised of Independent Practice Associations (IPA), Contracting Medical Groups (CMG) and plan owned All round care groups.

Some HMOs are organized as non-profit corporations.Such an example for California is Kaiser Permanente. Most, however, are for-profit, where shareholders and investors must be satisfied and often a question arises as to whose interests are being served, the patients, or the shareholders.  HMOs are attractive to many people because they can provide extremely comprehensive coverage at a very reasonable cost when compared with PPO plans. Office visit co-payments and other fees are usually very low and many costs associated with PPO plans such as co-payments on diagnostics etc. may be free of charge under an HMO plan. However, HMO plans do have some disadvantages.

There is generally no such thing as "in Network" and "Out of Network" coverage as there is with PPO plans. HMO plans do NOT Pay for any services rendered outside of their network of hospitals and physicians. Furthermore, the entire health care experience with many HMO plans is governed by the relationship with a selected "primary care physician". In most cases, this primary care physician MUST be consulted on all health care issues first and acts as a gatekeeper, in many cases, to prevent access to other in-network specialists in an effort to contain health care costs. There are more recently, a small number of plans that will allow direct access to a specialist without first consulting the primary care physician and this is another good reason to research each plan carefully, or have a competent professional assist in the process.

Some companies award primary care physicians bonuses for managing their patients in a cost effective manner and this can on occasions, place the patient at odds with the provider when the patient feels they require specialist attention for treatment of certain ailments, but where the primary care physician refuses to grant access to such specialists. The concept behind this "managed health care" is that costs can be lowered if a referral must first be obtained from the primary care physician. Why? Simply put, some patients with vague symptoms such as heartburn will run to a cardiologist for example and demand a host of expensive tests when a simple examination and a couple of TUMS from the primary care physician would have sufficed. The HMO takes the health care decision making process out of the patient's hands, and places it in the hands of a licensed physician. It's not a bad concept and it can work for those who are able to find a competent and caring primary care physician.

My advice is to stay with companies that have a good reputation for patient care. Some HMOs place restrictions on when and how a primary care physician can be replaced. It is best to know the company's policy before purchase. In addition, many HMOs require their doctors to meet a patient quota each day. If a physician is required, for example, to see a new patient every 15 minutes and is financially penalized by the HMO for not doing so, competent and caring primary care is, perhaps, no longer of paramount importance to the physician.  At the very least, a conflict of interest exists between physician and patient. In addition, there is the concept of Capitation. Contracted providers receive a set amount of money each month for each patient assigned to their practice whether or not the patient becomes ill and requires treatment. Often under these circumstances, the physician will earn more money if he sees fewer patients, or, if less diagnostic tests and examinations are ordered. Caveat Emptor certainly applies here.

Before choosing a primary care physician, it may be good to ask friends and family, or other colleagues at work with a similar HMO plan which primary care physician they used and whether they are happy with the level of service. Generally, any lab or diagnostic tests you need must be pre-approved by the HMO. This can sometimes take days, or even weeks if a question arises as to the necessity for the requested tests. However, in contrast to PPO plans, once a test, diagnostic procedure, operation and / or hospitalization has been approved HMO plans will generally cover all costs associated with such tests and treatments, with no co-payment or out of pocket expenses being incurred by the subscriber.

Many HMO plans also employ case managers, sometimes referred to as utilization nurses. These may be registered nurses who no longer work in medical offices. Instead, they work exclusively from the HMO's home office and manage the "cases" of patients on a daily basis as needed. They are often the ones who will make an initial judgment as to whether a test or diagnostic procedure is indicated, whether a patient may stay in the hospital another day, or requires the services of a specialist such as a Neurologist or Internist or, whether approval will be given for brand name or generic prescription drug, for example. When any decision adverse to one's interest is made, one has the opportunity to "appeal" to the nurse in charge, or the regional medical director.

Unfortunately, in some HMOs, the people making the initial decision do not have medical backgrounds. They are essentially "clerks and secretaries" who make decisions based on a book of protocols laid down by the HMO. It is this practice that has caused some controversy in the recent past. To summarize then, based on their continuing popularity, most members of HMOs seem to have reasonable relationships with their primary care physicians and have few problems with the managed care aspects of Health Maintenance Organizations. Of course, much may depend on one's choice of a competent and caring primary care physician and the HMO's rules regarding changing one's physician if necessary. Each HMO is different and subscribers tend to be very opinionated about them, both in a positive and negative fashion. Speaking to other subscribers who utilize local HMO providers may be helpful to those considering a HMO plan for their family.


So Which to Choose?

This decision will entirely depend on your individual circumstances. It can be as simple as geographic location. If one lives next door to a Kaiser hospital and the next facility is 25 miles away, this might be a no-brainer! If one is struggling to make ends meet, or living on a fixed income and needs comprehensive health insurance at a reasonable cost, an HMO may be the perfect choice. If one can afford to pay more and retain a degree of autonomy in the decision making process when it comes to one's health, then a PPO plan may be the right choice. It's important to be open and frank with the life agent developing a health plan for your family. Most importantly, think about your lifestyle and desires and incorporate these into this plan.

For example, if you plan to have children in the future, find a plan that offers coverage for maternity and well baby care, many plans completely exclude this. Find a competent planner and ask the right questions before filling out the application. I offer both individual and group PPO and HMO plans from well known and respected companies such as Blue Cross, Blue Shield, Health Net, Universal Care, Cigna, Nationwide etc. to residents located anywhere in California. For small businesses I also offer group plans through CalChoice Administrators. This provides you with the opportunity to offer your staff cost-effective plans from companies like health Net and Kaiser Permanente, while upgrading your own plans to the best of the best PPO plans from, for example, Blue Shield, all in one simple group health plan consisting of 12 separate options from five separate health insurance companies. Total flexibility for every business owner. If you need competent guidance through the myriad of choices available to you, please call 310. 260. 1126 for a quote or comparison of your current coverage. I look forward to servicing your health care needs.

Nigel B. Taylor
CA Insurance license Nr: 0716446

©2003-2009 Nigel B. Taylor, All rights reserved. Reproduction or dissemination of this article by written permission only.

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