Searching for a health insurance plan can be a pretty complicated process. The number of different pricing options is combined with a variety of different plan types, each with their own benefits and drawbacks. Often, many patients are tempted to pick the plan that is more affordable for them, or the one that is most comprehensive. This tendency toward the extremes results in a large number of Americans either paying for too much coverage, or being severely lacking in coverage for major diseases and injuries.
Generally, there are three types of health insurance plans offered to American consumers when they fund their own insurance or use an employer-subsidized plan that comes as part of their employment benefits package. These plans each have a few perks, and some drawbacks, but all three are perfect for patients in different situations.
The HMO: Health Maintenance Organization
It is perhaps the best-known acronym in all of health insurance. The HMO, or health management organization, represents one of the most common forms of health insurance held by the average American consumer. It’s easy one of the most affordable types of “traditional” insurance, and it comes with a number of benefits related to its overall cost. At the same time, this kind of health insurance option can be pretty restrictive and not convenient for those with serious health conditions.
Benefits of an HMO-Style Health Insurance Plan
The main benefit of an HMO plan is that its costs are significantly lower than either PPO or HSA alternatives. That’s because this type of plan dictates a strict network of primary care providers, specialists, and other medical professionals, and it covers only that network of medical offices and professionals. Anything outside of a health insurance company’s primary network is not covered by this plan at all, and consumers will have to be paid out of pocket.
Because an HMO plan allows health insurance companies to tightly control the costs they incur per customer, they’re able to offer this type of plan at a significant discount when compared to alternative options. This makes it ideal for consumers who are on a tight budget, or those who are looking to limit the total amount of deductions that are taken out of each paycheck. Because its price is lower overall, it’s easier for customers to have high maximum coverage limits while also maintaining a low deductible and low co-pays for office visits.
Drawbacks of an HMO: Out-of-Network Services are Expensive
Unfortunately, health insurance companies maintain a strict, arbitrary network of care providers. Anything outside of that network, while on an HMO health insurance plan, will need to be paid for in cash, out of pocket. That’s a significant expense in today’s economy, and one that most consumers simply can’t afford. If a specific physician or specialist must be seen, regardless of health insurance coverage, then an HMO plan just isn’t the right option.
The PPO: Preferred Provider Organization
Unlike an HMO, a PPO health insurance plan will cover specialists and primary care doctors who are either in an insurance company’s network or outside of it. The “preferred” part of this plan means that it will contribute more toward the costs of in-network physicians, while charging customers a larger percentage for out-of-network office visits and services. The much wider scope of coverage provided for this plan does raise its costs in comparison to the HMO option mentioned above.
Overall, the benefits of this plan are pretty good and pretty obvious. With a PPO health insurance plan, consumers don’t need to fret about seeing an in-network physician versus one who is outside of that network. Costs will be slightly greater for out-of-network services, but there is no need to pay out-of-pocket to receive care. This means consumers don’t have to compromise between seeking the best doctor and seeking the most affordable one.
Negatives of a PPO: Expensive in Comparison to HMO Plans
When compared to the monthly expenses of a traditional HMO health care plan, a PPO option can be rather pricy. That’s because health insurance companies have to cover a much boarder array of physicians, elevating the level of risk and financial drain they may experience per capita. In return, some consumers may elect to choose lower coverage limits, higher deductibles, and higher co-pays, in order to compensate for the costs associated with a preferred provider network health insurance plan.
Even so, many consumers deem this trade-off to be worthwhile if they are seriously ill or simply cannot forego seeing a specific doctor for any of their medical conditions. In this respect, the PPO plan will always have a slight edge on HMO competitors among older consumers and those who are very sick.
The HSA: Health Savings Account
Finally, the HSA plan allows for a much more individual approach to health care. Unlike the prior two plans, which cover most expenses with a percentage-based co-pay and deductible, a health savings account is actually used to cover any medical expenses a customer might have while on the plan. This plan sets up a special savings account, or uses a health savings account that has already been created elsewhere. When medical costs arise, that health savings account is used to cover the cost of procedures and prescriptions that might be required by the customer.
Deductibles and copays with this plan are quite high when compared to HMO and PPO plans. That’s because customers are essentially responsible for covering their own expenses to a greater extent than with either of those plans. The HSA is perfect for freelancers, self-employed individuals, and younger people who do not need the type of expensive care and specialists that their older counterparts often require.
Drawbacks of an HSA: Very Expensive for Serious Conditions
An HSA just doesn’t cover major medical expenses as well as a PPO plan, or even as well as an HMO health insurance option. That means the unforeseen could become the unfortunate, with skyrocketing expenses that will quickly empty the health savings account and leave the patient in a very tough place. It’s a smart plan for those who can manage it, but may be costly for others who are simply searching for “cheap” coverage.
Three Options with Three Very Different Markets
The HMO, PPO, and HSA plans offered by most employers and insurance companies are actually all great plans. They each have a unique market to serve, and a unique need to meet. Before choosing either of these plans, be sure to fairly assess how the plan will be used, whether it covers the unexpected, and whether it will result in financial benefits or major financial losses.