PPOs

April 13, 2006

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Preferred Provider Organizations, known as PPOs, are a cross between regular fee-for-service plans and HMOs. They are a nice compromise for people who don't want to pay for traditionally expensive fee-for-service coverage, but want more choice than an HMO offers.

Here's how a PPO works. The insurance company, as they do in HMOs, contracts with certain physicians and provides a "preferred provider" network of doctors and specialists that people insured under the PPO plan can choose to go to. However, unlike HMOs, patients do not have to go to the doctors in the preferred provider network, and they don't have to get referrals from their primary care physician to see a specialist.

However, patients are encouraged to use the preferred provider network because cost control and managed care measures can be used to keep costs down for the patient and the insurance company. If they do, patients pay for services with copayments, as they would in an HMO, or they receive a higher coinsurance amount than they would if they used a doctor not in the preferred provider organization.

Patients who used a doctor in the PPO network might get 90 percent coinsurance, so they would only have to pay 10 percent of the cost of the medical service, and they would have a low deductible (the part that the patient must pay first before the insurance company starts paying anything).

Generally deductibles for individuals in PPO coverage are between $150 and $300 per year. A patient who didn't use the PPO network might only have 70 percent coinsurance and a higher deductible. That would mean that that patient would have to pay the higher deductible (somewhere between $300 and $500 per year for an individual) and would have to pay 30 percent of costs incurred after that.

Which employees will like PPOs? PPOs are a better choice than fee-for-service plans for employees who do not make a lot of money but who want to have some flexibility in their choice of physician. They are also good for people who have built a relationship with a certain physician and want to continue that relationship. They may use preferred providers for other services and keep seeing that one certain specialist who is not in the network for an on-going problem they have. PPOs are also good for people who know they will exceed the deductible amount. People who will not exceed the deductible will see less value in their insurance because the deductible amount must come out of the employee's pocket first before the insurance payments start kicking in.