Merritt Personal Lines Manual: Preferred Provider Organizations (PPOs) and Point of Service (POS) Plans
Preferred provider organizations and point-of-service plans are the other major types of managed care. These plans combine the features of fee-for-service plans and HMOs. These plans provide choice regarding physician, hospital, etc.; an HMO restricts choice to a network provider. PPOs and POSs generally offer more flexibility than HMOs; but their premiums tend to be somewhat higher.
With a PPO or a POS, unlike most HMOs, you will get some reimbursement if you receive a covered service from a provider who is not in the plan. Of course, choosing a provider outside the plan's network will cost you more than choosing a provider in the network. These plans will act like fee-for-service plans and charge you co-insurance when you go outside the network.
What is the difference between a PPO and a POS plan? A POS plan has primary care physicians who coordinate patient care; and in most cases, PPO plans do not.
In many cases, a PPO is under contract to -- or a subsidiary of -- a commercial insurer. Under such a program, the overall plan benefits may include preventive health care, diagnostic services, physicians' services, inpatient and outpatient benefits, etc. These types of services and benefits are provided under the basic medical plan and/or the PPO option.
Unlike HMOs, PPOs do not utilize primary care gatekeepers. A single physician does not manage an individual's health care services. PPOs -- a cross between regular fee-for-service plans and HMOs -- are designed to provide the insured with increased benefits if the insured uses doctors and hospitals within its network.
Commercial insurers implemented PPOs as an answer to some of the negative aspects of HMOs, such as the limited choice members had of physicians. A PPO is a nice compromise if the insured doesn't want to pay for traditionally expensive fee-for-service coverage, but want more choice than an HMO offers.
Here's how a PPO works. Like an HMO, the insurance company contracts with certain physicians and provides a "preferred provider" network of doctors and specialists that the insured can choose to go to. However, unlike HMOs, the insured doesn't have to go to the doctors in the preferred provider network and the insured doesn't have to get referrals from the insured's primary care physician to see a specialist.
However, if the insured is in a PPO, the insured will be encouraged to use the preferred provider to keep costs down for both the insured and the insurance company. If the insured does, the insured will pay for services with co-payments, just like an HMO or the insured receives a higher coinsurance amount than the insured would if the insured used a doctor that is not in the preferred provider organization.
A PPO allows the insured to choose between cost savings and freedom of choice in selecting a health care professional.
Example: If Joan used a doctor in the PPO network, she might get 90 percent coinsurance, so she would only have to pay 10 percent of the cost of the medical service and she would have a low deductible (the part that she must pay first before the insurance company starts paying anything).
Generally, a deductible for PPO coverage ranges between $200 and $500 per year. If the insured doesn't use the PPO network often, the insured might only have 70 percent co-insurance and a higher deductible. That would mean that the insured would pay a higher deductible (somewhere between $500 and $1,000 per year per individual) and 30 percent of costs after that.
PPOs are considered to be closer to indemnity plans than managed care, since the insurance company pays discounted rates for medical services without becoming overly involved in health care decisions about the treatments rendered.
