As open enrollment approaches, we’ll see a flurry of three letter acronyms thrown at us. To insiders and daily users of this information, a PPO HDHP embedded 500/1500/20% makes perfect sense as a way to express a lot of information in a condensed, understandable fashion. To anyone else, that is gibberish. There are two basic interacting elements of the jargon that people have to wade through. The first is plan design. This is based on two sets of questions. Do people have to go through their primary care provider (PCP) as a gatekeeper for higher level care, and are there out of network benefits? The other is benefit design which means how much does each party pay, when, and to what limit? These two factors next hook to a network which leads to pricing decisions.
Very different plan designs can be attached to a single benefit design structure. Those pairing can then be hooked to multiple networks. A PPO 500/1500/20% attached to Mayhew Broad will price out much higher than an HMO 500/1500/20% that is attached to Mayhew Super Narrow. PPO 500/1500/20% Broad will also price out higher than HMO 500/1500/20% Broad.
Today we’ll just look at the most basic plan design elements. It is a 2×2 grid.
Point of Service (POS) is an odd bird. It is sold, but not widely. People are required to go through their PCP for higher level care. This is a utilization management/minimization strategy but it allows significant leakage outside of the network. Out of network benefits will usually have twice the deductible and out of pocket maximum as well as a higher percentage of co-insurance than in-network benefits, but the insurer will pay once a limit is reached. From the provider side, they can be paid at either a head payment (capitation) with health management risk transferred to the provider or on a fee for service basis where the insurer keeps the health risk.
Health Maitenance Organizations (HMO) require primary care providers to manage care. The PCP authorizes higher end care and they are expected to say no a lot more in a pure HMO arrangement than other plan designs as payments are structured as a risk adjusted monthly payment per person. If the provider group spends less than the average monthly payment, they make money, if they spend more, they lose money. The goal is to encourage cost effective care (ie physical therapy for back pain before considering surgery). Benefits are restricted to in-network providers only. Leaving the network for routine care may have the bills reduced to a percentage of usual and customary rates (UCR) instead of the absurd initial ask of a provider, but the insurer will not pay anything of that percentage of UCR. Sometimes there will be no reduction from the initial ask. It depends on the insurer and how they have built a wrap-around network to their core network.
Preferred Provider Organizations (PPO) are designs where there are the fewest utilization restrictions. PCPs are not a requirement. If a member is told to get high end specialist care or a surgery, they just have to get on the surgeon’s schedule. The claim will be paid. In network providers will get paid (from a member’s point of view) at a much better rate. There is out of network benefits, although these benefits usually kick in after the member has paid a lot more out of pocket. PPOs became very popular in the late 90s as part of the HMO backlash as they are the anti-HMO. Most PPO payment systems are based on a fee for service model. For a given network and benefit design choice , a PPO plan design tends to be the most expensive as a combination of more optional utilization, and self-selection of people who think they’ll need more care into a PPO design.
Exclusive Provider Organization (EPO) are an in-between step to the HMO and PPO. PCPs are not required (although recommended for most plans). They mostly perform like a PPO as long as person stays within network. If a person wants care, or a provider recommends care, they just have to get an appointment from an in-network provider in most circumstances. The big difference between an EPO and PPO is the out of network benefit. EPOs don’t have routine out of network benefits.
One more note on out of network benefits. The statements on out of network benefits only applies to routine and non-emergency care. If you break a leg two time zones away from your home, or you have a heart attack where the closest hospital is out of network, those claims will be paid up to the point that you are able to be transferred to an in-network provider. If you have Ebola, you probably would be treated at an out of network hospital but those claims would pay as if it was in-network for that particular disease episode.