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Insure.com FAQ: What is the difference among HMO, PPO and POS health plans?

Small business group health insurance: Frequently asked questions

Question:
What is the difference among HMO, PPO and POS health plans? Which is best for a small business?

Answer:
Choosing a health plan that will work for your business depends on your company's needs and financial situation. Very large companies frequently offer employees a choice of health plans or insurers. Small companies with price restraints typically can afford to offer only one plan.

Health maintenance organization (HMO): This is generally the least expensive group health insurance option, and also the least flexible. In exchange for a monthly premium, you are entitled to doctor visits, preventive care and medical treatment, all for an additional co-pay ranging from $15 to $20 for each appointment. Except for emergencies that occur outside of your HMO's service area, you cannot get reimbursement for a visit to a doctor who's outside the HMO network. This allows an HMO to keep its costs down.

An HMO covers prescription drugs. As the employer, you decide what percentage of each prescription will be covered by the HMO and what the employee pays out-of-pocket. This can range from a single-digit co-pay of $5 for some drugs to a co-payment covering almost the entire cost of the drug.

Preferred provider organization (PPO): More flexible and with a slightly higher premium than an HMO, a PPO allows you to venture out of network at your discretion and does not require a referral from a primary care physician. However, the $20 to $30 co-payment provides you with a financial incentive to stay in the network. Straying from the PPO network means that you pay the cost of your treatment in full and then submit the bill for reimbursement to the insurance company. A PPO generally reimburses 90 percent for in-network costs and 60 to 80 percent for out-of-network costs.

Point-of-service plan (POS): POS plans are a hybrid of HMO and PPO plans. Like an HMO, you designate an in-network physician to be your primary care provider. If you choose to receive services from an in-network provider, no deductible is charged. However, like a PPO, a POS plan lets you go out-of-network. But when you are treated by an out-of-network provider, you'll have to pay most of the cost unless your primary care physician refers you.

Typically, individual annual deductibles for POS plans are around $300 and the average annual family deductible is about $600 per year. The deductible amount is in addition to the co-payment for all out-of-network services. After the deductible is paid, the health plan picks up the tab, up to policy limits. A disadvantage of this plan is having to choose a primary care physician, who is charged with referring you to a specialist.

If you go out of network, you're not required to consult with your PCP first.

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