Health Maintenance Organizations represent "pre-paid" or "capitated" insurance plans in which individuals or their employers pay a fixed monthly fee for services, instead of a separate charge for each visit or service. The monthly fees remain the same, regardless of types or levels of services rendered. An HMO enters into contractual arrangements with healthcare providers (e.g., physicians, hospitals and other healthcare professionals) who together form a “provider network.” In simple terms, a contracted provider is one who provides services to health plan members at discounted rates in exchange for receiving health plan referrals.
Members are required to see only providers within this network to have their healthcare paid for by the HMO. If the member receives care from a provider who isn’t in the network, the HMO won’t pay for care unless it was pre-authorized by the HMO or deemed an emergency.
Members select a Primary Care Physician (PCP), often called a “gatekeeper,” who provides, arranges, coordinates and authorizes all aspects of the member’s health care. PCPs are usually family doctors, internal medicine doctors, general practitioners and obstetricians/gynecologists.
Members can only see a specialist (e.g., cardiologist, dermatologist, rheumatologist) if this is authorized by the PCP. If the member sees a specialist without a referral, the HMO won’t pay for the care.
HMOs are the most restrictive type of health plan because they offer members the least choice in the health care provider selection process. HMOs typically provide members with a greater range of health benefits for the lowest out-of-pocket expenses, such as a very low co-payment, or none at all. (A co-payment is the amount of money a member is required to pay to the provider, in addition to what the HMO pays.) It often must be paid before one can receive services.
Preferred Provider Organizations (PPOs)
PPOs are similar to HMOs in that they enter into contractual arrangements with healthcare providers (e.g., physicians, hospitals and other healthcare professionals) who together form a “provider network.”
Unlike an HMO, members don’t have a designated primary care physician (“gatekeeper”) nor do they have to use an in-network provider for their care. However, PPOs offer members "richer" benefits such as financial incentives, to utilize the services of network providers. The incentives may include lower deductibles, lower co-payments and higher reimbursements. For example, if you see an in-network family physician for a routine visit, you may only have a small co-payment or deductible. If you see a non-network family physician for a routine visit, you may have to pay as much as 50 percent of the total bill.
PPOs are less restrictive than HMOs. They also tend to require greater "out-of-pocket" payments from the members.
Point-Of-Service Plans (POS)
A POS plan is often called an HMO/PPO hybrid or an “open-ended” HMO. The reason it’s called “point-of-service” is that members choose which option – HMO or PPO – they will use each time they seek health care.
Like an HMO and a PPO, a POS plan has a contracted provider network.
POS plans encourage, but don’t require, members to choose a primary care physician (PCP). As in a traditional HMO, the PCP acts as a “gatekeeper” when making referrals. Members who choose not to use their PCPs for referrals (but still seek care from an in-network provider) still receive benefits but will pay higher copays and/or deductibles than members who use their PCPs.
POS members also may opt to visit an out-of-network provider at their discretion. If so, member copays, coinsurance and deductibles are substantially higher.
POS plans are becoming more popular because they offer more flexibility and freedom of choice than standard HMOs.
Health Savings Accounts (HSAs)
Federal legislation enacted in late 2003 authorized the creation of Health Savings Accounts (HSAs). These savings accounts are combined with a high-deductible health plan. Because high-deductible plans generally cost less than low-deductible plans, HSAs are a good option for individuals who cannot afford a comprehensive (low-deductible) health plan.
Both employers and individuals may contribute to HSAs. Total annual contributions to the savings account may be up to 100% of the annual health plan deductible amount and may be used to pay for any qualified medical expenses. The savings account is controlled by the covered employee or individual and is intended to pay for small, routine health care expenses.
Once the deductible amount is satisfied, additional health expenses are covered in accordance with the provisions of the health insurance policy. For example, an individual pays the deductible, and afterwards is responsible for 10 percent of the costs for care received from the PPO network.
Deposits made to an HSA are tax-free to the individual or employee, and money not spent at the end of the year may be rolled over, from year to year, to pay for future medical expenses. Money from the HSA may be withdrawn for any reason, but if it's not for qualified medical expenses as defined under §213(d) of the Internal Revenue Code, the withdrawal is subject to a 10 percent penalty and is included in gross income for income tax purposes. (The penalty is waived in a few cases: the death of the beneficiary, a disability, or if the individual reaches the age of 65.)
Features of an HSA:
Unused funds and interest are carried over, without limit, from year to year.
An individual owns an HSA always— even when he or she changes plans or retires.
An HSA is administered by a trustee/custodian.
The contribution limits, out-of-pocket expenses, and deductible amounts are indexed to inflation. In 2004, the limits for individuals are:
A deductible of $1,000 or more.
Total annual out-of-pocket expenses (other than premiums) for covered benefits not to exceed $5,000.
Annual contributions not to exceed the lesser of 100 percent of the deductible or $2,600.
The limits in 2004 for families are:
A deductible of $2,000 or more.
Total annual out-of-pocket expenses (other than premiums) for covered benefits not to exceed $10,000.
Annual contributions not to exceed the lesser of 100 percent of the deductible or $5,150.
Individuals and couples aged 55 or older may contribute more to the account per year.
For example, for married workers, an employer might provide a family policy that has a $5,000 deductible while depositing 60 percent of the deductible ($3,000) in each employee's HSA at the beginning of the year. (Employer contributions must remain the same for all employees.) Workers would be responsible for the first $5,000 in medical costs, but they would each have $3,000 in their personal HSA to pay for medical expenses (they may contribute even more to the HAS should they choose to.) If workers or their families exhaust their $3,000 HSA allotment, they would pay the next $2,000 out of pocket, after which the insurance policy would begin to pay.
High Deductible Health Plans
A High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA) provides traditional medical coverage and may be used as a tax-free vehicle which can help build savings for future medical expenses. The HDHP/HSA or HRA plans provides an individual with greater discretion and flexibility in healthcare.
The HDHP features higher annual deductibles (a minimum of $1,100 for individual and $2,200 for individual and family coverage) than other traditional health plans. The maximum out-of-pocket limit for HDHPs participating in the FEHB Program in 2006 is $5000 for individuals and $10,000 for individual and family enrollment. Depending on the HDHP you choose, one may have the choice of using in-network and out-of-network providers. Using in-network providers saves a significant amount of money. With the exception of preventive care, one must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid as first dollar coverage or after a small deductible, or co-payment. A maximum dollar amount (up to $300, for instance) may apply.
When you enroll in an HDHP, the health plan determines if you are eligible for a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). If you are a Medicare enrollee, you are not eligible to take advantage of an HSA. Each month, the plan automatically credits a portion of the health plan premium into your HSA or HRA, based on your eligibility, beginning the first day of the month. You can pay your deductible with funds from your HSA or HRA. If you have an HSA, you can also choose to pay your deductible out-of-pocket, allowing your savings account to grow.
Benefits of HDHPs
High-deductible health plans play an important role in the health benefits marketplace. Premiums are lower, which allows many employers, especially small businesses, to provide health benefits they might not otherwise be able to afford.
HDHPs are a great solution to the growing problem of the uninsured. New data shows that 27 percent of HDHPs with health savings accounts (HSAs) sold in the small group market were to employers that did not previously offer coverage to their employees.
HDHPs elp raise consumer awareness. Research shows that total health spending is reduced when consumers bear more responsibility for their health care expenses.
HDHPs offer consumers a more significant role in the healthcare decision-making process, and create greater awareness of the rapidly increasing cost of health care services. With the exception of many preventive care services, covered employees must pay the deductible - a preset level of medical expenses - before most medical expenses are covered by the plan. HDHPs are often combined with an HSA or a health reimbursement arrangement (HRA), which helps plan members meet their deductibles. These plans encourage greater cost awareness and responsible, informed decision-making, with the help of consumer information tools. Employee contributions to health care costs have increased 126 percent over the last five years. HDHPs, with their lower premiums, offer employers an affordable choice when offering health benefits to their employees. A study conducted in 1970 showed that participants in HDHPs used 25-30 percent fewer services than those in a no-cost plan.
