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July 2, 2020
4 min. read

Getting Smart About Insurance: HMO vs PPO vs Other Plans

ND Medina

The health insurance industry is infamous for its use of a lot of confusing acronyms. Many of these acronyms cloak really important information, like the type of health insurance we actually have and how it works. But the acronyms are not that hard to understand once you unlock their secrets, and with this handy guide you’ll be able to de-mystify the world of health insurance plans to yourself, your friends and family. Let’s get started.

HMO: Health Maintenance Organization

An HMO plan has low premiums and deductibles, as well as fixed copays for doctor visits. The catch is that in order to participate in an HMO, you have to elect a Primary Care Physician (PCP) who must refer you to outside specialists in order for you to see one. Without a referral, services will not be covered. In addition, you must choose doctors within the HMO’s network, or services will not be covered.

An HMO is usually a suitable choice for a budget-conscious person without many medical issues.

POS: Point of Service

A POS is a plan that also requires you get a referral from your PCP before seeing a specialist. The premiums are slightly higher than they would be for an HMO, but this plan covers out-of-network doctors. This is important if you or your covered individuals will need access to doctors who are not in network due to geographical location or managing a condition.

EPO: Exclusive Provider Organization

An EPO is a cousin of the HMO that covers only in-network care but has larger networks than an HMO. Depending on the plan, a referral to specialist care from a PCP may or may not be required. While EPO premiums are higher than HMOs, they are lower than some other plan types.

PPO: Preferred Provider Organization

A PPO has more expensive premiums than an HMO or POS, but this plan allows you to see specialists and out-of-network doctors without needing a referral. On top of that, copays and coinsurance for in-network doctors are low. PPOs are a good option for someone who needs a lot of health care and is able to afford the higher premiums.

HDHP with HSA: High Deductible Health Plan with Health Savings Account

This option is a little complicated. A HDHP has low premiums, meaning you will pay less per month, but it has higher out-of-pocket costs due to its high deductible, which must be met before the insurance company will start to pay out. Employers will sometimes pair an HDHP with an HSA, which will be funded to cover that deductible using pre-tax dollars, saving you about 30%.

An HDHP can be any type of plan, from an HMO to an EPO. If you are managing a health condition and can’t afford higher monthly premiums, but are confident you will meet your deductible within the year due to the level and frequency of care you require, an HDHP may be the way to go, especially if your employer contributes to your HSA.

To qualify for an HSA, you must have a HDHP. With an HSA, the money you save stays with you and can be rolled over year after year. You can only spend money you have saved. HSA plans also sometimes provide the option of investing your funds, earning tax-free profits you can use for your health needs.

AN HSA offers tax benefits and has annual contribution limits.

FSA: Flexible Spending Account

An FSA is similar to a line of credit. You can buy items that are more than what you have in your account as long as you are on track to save at least the price of those items by year-end. When the year is up, however, you lose the money you’ve placed in your FSA. Because the account is funded with pre-tax money, you save about 30%, just like in an HSA.

Like an HSA, an FSA offers tax benefits and has annual contribution limits. However, you cannot contribute to both an HSA and a traditional FSA in the same year. You can contribute to an LPSFA (see below) or to a Dependent Care FSA for child care costs.

LPFSA: Limited Purpose Flexible Spending Account

A LPFSA works just like a normal FSA. However, its funds can only be used for vision and dental purposes.

HRA: Health Reimbursement Arrangement

Just like an FSA or an HSA, HRAs can be used toward eligible out-of-pocket expenses. However, only your employer can contribute money to your HRA account. While your funds are available immediately and some plans allow unused dollars to be carried over year to year, your HRA cannot come with you if you leave your job or change your health plan. Any amount left in the account goes back to your employer.

While the world of health insurance can be confusing to navigate, these terms don’t have to be. Knowing what kind of health insurance your employer or marketplace is offering can help you to measure the value they offer and budget for the expenses you expect throughout the year.

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