Since the ’70s, the market has shifted from traditional fee-for-service health insurers to health maintenance organizations (HMOs) and preferred provider organizations (PPOs). HMOs and PPOs can cost much less than comprehensive individual policies.

An HMO provides comprehensive health care services to the insured for a fixed periodic payment. There may also be a nominal fee paid for each visit to a health care provider. Unlike traditional insurance, HMOs actually provide the health care rather than just making payments to health care providers. HMOs can have a variety of relationships with hospitals and physicians. Plan physicians may be salaried employees, members of one independent multi-specialty group, part of a network of independent multi-specialty groups, or part of an individual practice association.

Because HMOs integrate health care providers with insurance, they are able to provide improved health care delivery. This unique relationship allows the HMOs to maintain a lower cost of service from plan providers. Because HMOs are provider and insurer, this allows for lower administrative costs and paperwork for the patient.

Through the use of managed care, HMOs and PPOs are able to bring down the costs of hospitals and physicians. Managed care is a set of incentives and disincentives for your physicians to limit what the HMOs and PPOs consider unnecessary tests and procedures. Managed care generally requires the consent of your primary care physician before you can see a specialist.

HMOs also try to bring down costs by providing preventive care. Because visits to primary care physicians are inexpensive, this increases the chance of early detection and care.

Preferred provider organizations have also contracted with hospitals and physicians to provide you with health care services. Unlike an HMO, you do not have to go to these physicians. However, you will pay more if you go outside the list of preferred providers. In a PPO plan, you will usually have a deductible, which is the amount that the insured must pay before the PPO begins to pay. When the PPO plan does start to pay, it will usually pay a percentage of the bill and you have to pay the rest, which is called coinsurance. Most plans will have an out-of-pocket maximum. This will protect you from paying more than a certain amount per year. After you pass this amount, the coinsurance percentage increases to 100 percent.

The out-of-pocket maximum, deductible, and coinsurance will each affect the cost of the PPO insurance coverage. You can lower your premiums by having as high of a deductible as you can afford to pay.

© 2006 Emerald Publications

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