How I Decided Between HMO, PPO, POS Health Insurance Coverage

If you are like me, this decision can feel slightly rushed, since you are scrambling to learn a new job and adjust to a new way of life.

However, similar to deciding which 401k mutual funds/investments you will invest in, choosing which type of health coverage you will go with is a very important decision as well. Unfortunately, many new employees use the technique of asking/following what their cubicle mates use (see Cubicle Copying post for more information).

In this post, we’ll try to sort through the positive and negative aspects of each type of coverage generally offered by employer-sponsored plans, and I’ll try to share my experiences, when possible, to provide some life to the subject.

Let’s get started!

What are the three types of health insurance managed care plans?

The three types of coverage available from most employers are 1) health maintenance organizations (HMO) ,2) preferred-provider organizations (PPO), and 3) point-of-service (POS) plans.

HMO Coverage

• Are generally the most restrictive form of health insurance plan.
• When you sign up, you select a primary care physician from a network list provided.
• If a health problem materializes, you must see the primary care physician before going to see anyone else/ a specialist. If you go to see a specialist without consulting your primary care physician, the specialist visit will not be covered.
• Because of their restrictions, they are also the cheapest form of health care coverage.

Will HMO’s cover you if you have to go to the emergency room?

As I was writing the description above about HMO’s, I began to wonder if emergency visits were covered by HMO insurance.

In reading more on this subject, I learned that emergency room visits/emergency care is covered by HMO insurance, with a $50 co-pay. However, what makes me very uneasy is this clause: “Out-of-network emergency room visit are covered for serious or life threatening emergency care treated in an emergency room.”

Personally, I read this as the insurance company being able to determine what is an emergency or serious injury, and what is not.

For example, what if you are up in the middle of the night with a horrible stomach pain from a flu virus and decide to go to the ER?

Now, while that may be an emergency to you, will it be considered as such by your insurance company? Personally, I would not want to take that chance.

PPO Coverage

• Consists of a group network of doctors, medical practices, and hospitals.
• Do not require the primary physician “gatekeeper.” You may have a primary care physician, but you can go see a specialist without a referral.
• Slightly mor expensive than HMO programs.
• This is the type of coverage that I personally have with my employer. More details on that in the section below on my experiences.

POS Coverage

• Combines features of both HMOs and PPOs.
• Allows you to save money if you use in-network care providers, or you can elect to visit a provider outside the network, in which case, you would pay a deductible.

How do you determine which coverage is best for you?

In David Bach’s book, Smart Couples Finish Rich, he recommends to always steer clear of HMO’s and to generally take the most expensive policy your employer offers (because it will give you the most flexibility).

I tend to agree with the HMO avoidance piece of this advice. However, since PPO’s provide a good bit of flexibility and save you money compared to the POS plans, I have found PPO’s to be best suited to my needs.

My experience

My employer offers 3 options for health insurance coverage:

• PPO
  • Enables you to visit in-network and out-of-network providers. However, in-network providers cost less.
  • This is the coverage I elected to use, and I have never had a problem with it all.
  • However, I have not been seriously injured during the time I’ve had the coverage, and have just seen my primary care physician for annual check-ups, etc. So, I can’t comment on how good it would be if I were to be hurt badly.
• 80/20 In-Network and Out-of-Network (similar to POS discussed above)
  • Covers a range of services, including preventative care, emergency, and primary care.
  • When you need to see a medical provier, you may choose to go in-network or out-of-network.
  • If you go out of network, you will be covered 80% by your insurance. If you go in-network, it will be less.
• HMO 
  • Follows the HMO model described above.
  • Provides no coverage for care received out-of-network or if a failure occurs in getting a referral from your primary doctor, except for emergencies.
  • No annual deductible, and most care is 100% covered, with the exception of a co-pay for emergency visits and visits to your primary care physician.

I hope this post has helped you sort through some of the confusion surrounding the different health coverage plans available.

Keep on learning!

Jacob