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What is the difference between  Traditional Major Medical, HMO, and PPO plans?

A Traditional Major Medical plan is one in which your insurance company will reimburse you for covered medical expenses after certain conditions are met. One of these conditions is that you will have to pay a deductible.  Deductibles can range from $50 to $5,000.  As a general rule, the higher the deductible, the lower the premium cost.  A second conditon is a Traditional Major Medical plan typically requires you to pay a portion of the cost above the deductible, this is often referred to as co-insurance.  Typically, the co-insurance amount is expressed as a percentage of the claim amount above the deductible. A common  co-insurance percentage is 80/20, where the insurance company pays 80% and you pay 20%. At Quotesmith.com, you can find plans with deductibles from $50 to $5,000 and co-insurance percentages from 50/50 to 100/0. As a general rule, you will be able to choose your doctor without reference to an approved list provided by the insurance carrier.

An HMO (Health Maintenance Organization) is a managed care program.  Most HMO's require each family member to select a Primary Care Physician from an approved list provided by the HMO.  This Primary Care Physician will then direct all of your medical treatment including referring you to a specialist.  This specialist is usually a member of the HMO you are insured with.  Failure to see your selected Primary Care Physician first (unless in an emergency situation) can result in sharply reduced benefits or no benefit at all.  As a general rule, HMO's provide the most comprehensive medical care; such as routine office visits, physical exams, well-baby care and immunizations.  HMO's also feature low office visit co-payments and usually do not require the filing of claim forms

 PPO plan (Preferred Provider Organization) combines elements of a Major Medical plan with an HMO.  There is a list of Preferred Providers of doctors and hospitals you can choose from, but you are free to choose an out-of-network doctor or hospital.  However, if you choose an out-of-network provider, you will probably have to pay an increased percentage of the cost.  A typical plan may provide that in-network provider services are provided with an 80/20 co-insurance percentage, while out-of-network provider services would be provided with a 60/40 co-insurance percentage. You usually will have to pay a deductible and a co-insurance payment with a PPO plan.

More about managed care plans

 HMO

HMOs are the oldest form of managed care plan. In an HMO, instead of paying for each service that you receive separately, your coverage is paid in advance. This is called prepaid care. For a set monthly fee, HMOs offer members a range of health benefits, including preventive care, but typically care must be authorized by your primary care physician.

HMOs will give you a list of doctors from which to choose a primary care physician. This doctor coordinates your care, which means that generally you must contact him or her to be referred to any specialist. This is often called physician-directed care, as self referrals to specialists or unauthorized care is not covered. Typically, with most HMOs there is a copayment for office visits, hospitalizations, and other health services.

POS

Many HMOs offer plan members the option to self direct care, as one would under an indemnity or PPO plan, rather than get referrals from primary care physicians. An HMO with this opt-out provision is known as a point-of-service (POS) plan. How the plan functions (i.e., like an HMO or like an indemnity plan) depends on whether individual plan members use their primary care physician or self direct their care at the "point of service."

To illustrate this point, this is how these plans typically work. When medical care is needed, the individual plan member essentially has up to two or three choices, depending on the particular health plan. The plan member can choose to go through his or her primary care physician, in which case services will be covered under HMO guidelines (i.e., usually a copayment will be required). Alternatively, the plan member can access care through a PPO provider and the services will be covered under in-network PPO rules (i.e., usually a copayment and coinsurance will be required). Lastly, if the plan member chooses to obtain services from a provider outside of the HMO and PPO networks, the services will be reimbursed according to out-of-network rules (i.e., usually a copayment and higher coinsurance charge will be required). Because people who belong to POS plans are responsible for deciding how to access care within the various options, it is important that they understand the financial implications of these choices.

PPO

A PPO is the form of managed care closest to an indemnity plan. A PPO negotiates discounts with doctors, hospitals, and other providers of care who will accept lower fees from the insurer for their services. As a result, the premiums are lower because some of the provider payments will be discounted.

If you go to a doctor within the PPO network, you will pay a copayment (a set amount you pay for certain services -- say, $10 for a doctor, or $5 for a prescription). In addition, your coinsurance will be based on the negotiated discounted charges for PPO members. For example, the insurer may reimburse you for 90 percent of the cost if you go to a provider within the network. If you choose to go a provider out of the network, the insurer might only reimburse you for, say, 70 percent of the cost. In addition, with an out-of-network provider, you may have to pay the difference between what the provider charges and what the plan will recognize as a reasonable charge.

Another characteristic of PPOs is the ability to make self referrals. In essence, plan members can refer themselves to doctors of their choice, including specialists inside and outside the PPO network. However, as described above, plan members may incur higher copayments for using out-of-network providers.