Types of Insurance
Health Maintenance Organizations (HMOs) - Under an HMO, members pay less out of pocket (OOP) and generally have no deductibles, but require that members coordinate their care through a ‘gatekeeper”, a primary care physician (PCP) that they choose from the plan’s network of available providers. This PCP coordinates all referrals to specialists or other network providers. Most HMOs do not have out of network (OON) benefits, except for emergency care.
Preferred Provider Organization (PPO) – In a PPO, members may generally see any doctor that they choose. They may receive care from a network of providers (in-network), or choose to see providers outside the network (out of network). PPOs will frequently have a deductible that must be met before the plan will begin paying for services, with the exception of the ACA’s Preventative services. This is important to account for, since deductibles can be several thousand dollars.
Point of Service (POS) - This type of plan is a blend of the HMO and PPO plans. Members may see providers either in-network or out of network, but must be referred for OON service by their PCP else be responsible for the full charge for the service.
It is important to remember that there may be different financial responsibility for the member for in-network and out of network services, including higher co-pays and co-insurance. It is also crucial that members using out of network providers realize that they will be responsible to pay the OON provider the full charge for the service, not the “Allowed Amount” that the plan negotiates with each in-network provider for the same service.
The following chart is an example of how the different plans will process and pay for one claim. All of the co-pays and percentages used are examples, and will vary by plan. As you can see, although the doctor’s charge is $500, the “Allowed Amount”, which is what the doctor has agreed to accept as payment in full in exchange for being a part of the insurer’s network, is only $350. This lower amount only applies when you receive treatment from an in-network provider.
In Network | Out of Network | |||
Cost of service | Allowed Amount | What the member must pay: | ||
HMO | $500 | $350 | $30 co-pay | NA |
PPO/POS with deductible | $500 | $350 | $30 co-pay + $320 applied to deductible = $350 | 40% of allowed amount as co-insurance ($140) + $210 applied to deductible + $150 balance of cost of service owed to provider = $500 |
PPO/POS without deductible (or deductible met) | $500 | $350 | $30 co-pay | 40% of allowed amount as co-insurance ($140) + $150 balance of cost of service owed to provider = $290 |
What are Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA)?
These are two unique savings accounts that allow people to put pre-tax income into an account that is used solely for paying healthcare expenses. This is helpful because, by paying for approved services from this account, members can save a significant amount of money because there are no taxes assessed on the income prior to its deposit into the account, or on its withdrawal for payment. Depending on an individual’s tax rate, that could result in a lot of additional money to pay for healthcare, like co-pays for doctor visits, co-pays for medications, some medical supplies, etc.
An HSA is an individual savings account to which an employee and their employer can make tax-free deposits. Members can withdraw the funds in an HSA without paying taxes to pay for allowable health care expenses. Individuals can get an HSA from their employer or open one on their own through a financial institution.
An HRA is similar to an HSA except that they are established and funded tax-free only by the employer. Employees may not contribute to these account balances.
There are annual limits to how much can be deducted for these accounts, adjusted annually. For 2014, the annual limitation for an individual with self-only coverage under an HDHP is $3,300, and for an individual with family coverage under a HDHP is $6,550.[i]
High Deductible Health Plans (HDHP) are what they sound like – health insurance with high deductibles – and are defined for 2014 “as a health plan with an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,350 for self-only coverage or $12,700 for family coverage.”[ii]
HDHPs may be linked with an HSA or HRA to help pay for the cost of medical care but do not need to be.
[i] 26 CFR 601.602
[ii] 26 CFR 601.602