Medical Insurance

Types of Health Insurance Plans: HMO, PPO, POS, HD (HSA)

Health Maintenance Organizations (HMO)

Health Maintenance Organizations are considered preventive health plans. By paying a monthly premium, the HMO covers:

HMOs stress preventive care as a way to manage medical costs. By averting major illnesses and limiting excessive spending and wasteful practices, HMO plans can do an effective job in controlling costs. Yet, even these organizations have been forced to make changes as our nation's health care landscape continues to change.

While this form of health care offers a range of services, patients must typically select one primary care physician from within the HMO's network. The primary care physician will then refer you to any specialists that might be required. With an HMO you are limited to visiting doctors, hospitals, and clinics that are part of the provider network. There is no deductible, but you may or may not be responsible for a co-payment, depending on your coverage. If you choose to visit a provider from outside the HMO network, your insurance will not cover the fees.

HMOs can be structured in a number of ways. Group model HMOs may have centralized medical offices and clinics. Other HMOs may offer Individual Practice Associations (IPA) which contract with physician groups or individual doctors in private practice, thus building a satellite of local coverage for patients to choose from.

Preferred Provider Organizations (PPO)

A PPO is the managed care insurance product that functions the most like an indemnity plan. It works the same as an HMO in its conception: The PPO negotiates contracts with doctors, hospitals, etc., in order to build a network of services who will accept lower fees. If you visit a physician from within that provider network, the plan will pay for it, but you might be responsible for a small co-payment.

The aspect that is like an indemnity plan is that you then have the option to see a provider from outside of the network and still retain partial coverage. It is likely you will pay a deductible, but PPOs will typically pay for 60-75% of the charges for visiting an out-of-network provider, depending upon the plan you've chosen. Additionally, you have the option to refer yourself to the physician of your choice, from inside or outside the network, without having to first see your primary care physician. This combines the savings of a managed care product with the self-directed choice of indemnity insurance.

Point of Service (POS)

In response to criticism concerning plan flexibility and options, many HMOs have come to offer POS plans. This provides the ability for plan members to self-direct their own care, effectively making it a working indemnity type option. With the point of service plan, there are tiered levels of service from which you can choose each time you engage the point of service. There are typically three options to choose from with POS plans.

You can see an HMO physician, and your insurance will pick up the tab. Or, if there is also a PPO network, then you can see one of those practitioners, provided you're willing to pay, depending on plan design, either a co-payment or possibly a coinsurance amount. Lastly, you can choose to see a practitioner completely outside the network, and it will be processed in a manner typical of an indemnity plan - you may have a deductible, and coinsurance to pay.

If your primary care physician refers you to a doctor within the network, the plan will pay for it. If he refers you out of network, the plan will pay part of the bill. Lastly, if you refer yourself out of network, you will be responsible for paying coinsurance.

POS plans offer the savings of managed care with the self-directed control of indemnity plans. They are complex products, best suited for a sophisticated user who understands how to take advantage of the economics of the plan when deciding where to seek care and how to pay for it.

Health Savings Account Health Insurance

One of the drawbacks of managed care health insurance plans like HMOs and PPOs are the restrictions placed on treatment coverage that can limit your healthcare options. Utilizing a Health Savings Account (HSA) is one way to put more flexibility into your health insurance plan. Contributions you make to an HSA are yours to spend on current and future medical needs, giving you the opportunity to research your health options, consult your physician, and make medically appropriate treatment choices without consulting your insurance gatekeeper or case manager.

HSA Basics

An HSA is a tax-advantaged savings and investment plan, similar to an IRA. Funds contributed to the HSA remain in the account from year to year, and are not subject to any "use it or lose it" provisions. The plan participant owns and has responsibility for the HSA. You will often hear HSAs referred to as consumer-driven or consumer-choice programs. This is because an HSA allows the account holder to make decisions as to how the account funds will be used. HSA savings can be set aside to cover medical emergencies, or used right away to pay for routine medical expenses.

Money deposited to the HSA is tax-deductible. If your HSA is offered as an option with an employer-provided health plan, both you and your employer can make contributions to it. You can deposit up to the lesser of 100 percent of your health plan deductible, or the maximum legal limits ($2,700 for individuals, $5,450 families). Funds you deposit into the HSA are an "above the line" deduction on your federal income tax. In other words, even if you do not itemize, you will get the deduction. You incur no federal tax liability for funds your employer (or others) contributes to your HSA. Tax treatment of HSAs can vary by state, although the majority of states currently comply with federal guidelines and offer deductions for the accounts.

HSA Eligibility

There are some rules applied to eligibility for an HSA:

HSA Distribution Rules

HSA distributions are tax-free when used to meet medical expenses. Allowable expenses include most medical care and services, prescription and over-the-counter drugs, and dental and vision care. If you use account funds to pay for non-medical expenses, they will be subject to income tax and a 10 percent tax penalty. You cannot use the funds to pay for medical premiums except for:

If you become disabled, or when you reach the age of 65, the 10 percent federal tax penalty for withdrawing HSA funds to pay for non-medical expenses no longer applies.