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How HDHP Coverage Fits In With HMOs and PPOs

How HDHP Coverage Fits In With HMOs and PPOs


Figuring out the difference between HMO and PPO health coverage can be confusing on its own. When you add in high deductible health plans (HDHPs), things can get even murkier. Are HDHPs separate from HMOs and PPOs? Do you need one in order to have the other? We’ll clear everything up here, starting with a quick review about HMOs and PPOs:

Health Maintenance Organization (HMO) Coverage
HMO coverage lets you gain access to a network of doctors, hospitals, and other healthcare providers that has been established by your insurance provider. Your insurance company has negotiated with the members of this network to provide medical services at specific rates. However, HMO coverage typically doesn’t pay for medical services received outside its networks (except in a true emergency).

Also, HMO coverage requires you to pick a primary care physician (PCP) and get a referral from him/her before making an appointment with a specialist. For example, if you were having knee pain and wanted physical therapy, you couldn’t just make an appointment with a physical therapist. You’d have to go to your PCP, who would then refer you to the physical therapist.

HMO coverage typically has lower monthly premiums as compared to PPO coverage. Also, with HMO coverage, you likely won’t have to file claims, since you’ll only be getting in-network services. There’s also a plan called Point-of-Service (POS) coverage that’s similar to an HMO. With POS coverage, you typically designate a PCP like with a HMO, but you have ability to go outside your network for medical services like with a PPO.

Preferred Provider Organization (PPO) Coverage
PPO coverage is also based around networks of medical providers, but you are allowed to go out-of-network for medical services. PPO coverage usually pays some of the cost for out-of-network service, but not as much as for in-network service. However, your out-of-network service likely won’t count toward your annual deductible, so you could end up paying more before you reach your deductible.

Also, PPO coverage doesn’t require you to choose a PCP and doesn’t require referrals for seeing specialists. In the physical therapy example above, with PPO coverage you could make an appointment directly with the physical therapist without first seeing your PCP.

PPO coverage typically has higher monthly premiums than HMO coverage, since PPO coverage allows you to go out-of-network for medical service. With each plan, however, you should read the fine print to make sure you understand what you’ll have to pay in copays and coinsurance. Also, with PPO coverage you may have to file claims for any out-of-network services you receive.

Which Coverage Is Best For Me?
Which coverage is the right fit for you depends on how much you want to pay and what type of access to medical services you need. If you don’t mind having to work with a PCP and feel good about the in-network medical providers in your plan, a HMO will typically save you money on your premiums. If you don’t mind paying a bit extra to have coverage outside your network and prefer the convenience of seeing specialists directly, a PPO is a great choice.

How Do HDHPs Fit In?
An HDHP isn’t a separate category of health care; it’s just a plan that has higher deductibles than many other health plans. HDHPs can be designed either as HMOs or PPOs, depending on the plan. Your employer may offer two HDHP options, one HMO and one PPO. Or, they could offer two HMO or PPO options, one HDHP and one non-HDHP.

Which health insurance you should choose depends on your goals and needs. If you’d like to make HSA contributions, you need to go with the HDHP (check with your employer to make sure it’s HSA-qualified). As long as your HDHP is HSA-qualified, it doesn’t matter whether it’s an HMO or PPO; you can choose the plan that fits your needs better.

HMOs and PPOs determine which medical providers you can see, as well as whether you need PCP referrals or if you’re allowed to see specialists directly. HDHPs can be either HMO and PPO and refer to plans with higher deductibles. Finally, HSA-qualified HDHPs are HDHPs that meet the IRS’ requirements for minimum and maximum deductibles.

With an HSA-qualified HDHP, you can make HSA contributions and use your HSA to pay for or reimbursement qualified medical expenses tax-free. Also, you can invest your HSA funds to cover healthcare costs in retirement. Learn more about HSAs here.

Author: James Denison