HMO and PPO Health Insurances - Which is Best for You

Many large companies offer health insurance to their employees. Often you can change your coverage type once a year during a period of a month or two called open enrollment. The decision you make could cost you a fortune based on what happens to your health during the coming year. There are many employees who opt not to take health insurance at all due to the costly monthly fees that you will have to pay. Some companies cover 100% of the fees but most split the cost with the employee. Opting not to take health insurance is like playing Russian Roulette with your health.

Generally your company pays a portion of the insurance fee and you pay the balance. An 80%/20% split for active employees is not unusual. PPOs tend to be slightly less costly than HMOs but usually not by very much. Since there are many options that HMOs and PPOs offer, your payment may be higher or lower but expect about $200 to $300 a month to be deducted from your paycheck for single person coverage and $300 to $400 a month for family coverage. If you pay less than this, your company is either picking up a larger portion of the difference or they are using one of the lower cost and probably lower quality HMO's/PPOs. Retirees pay more in some companies. A $525 per month fee for two people is not unusual, in fact that is what I pay each month as a retiree. My Company picks up 2/3rds of the insurance fee premium for retirees. Some larger companies pay much more, especially if you were in a company and belonged to a strong union. However, many companies are dropping their coverage for retirees altogether because of the high costs involved.

What is an HMO?

HMOs were designed to catch and cure problems before they become big and expensive medical problems. Your costs are usually minimal for in-plan Physicians, medical tests and Hospital costs. Medications are cheaper because the HMO plan administrators can bargain with Pharmaceutical Companies to get medications at a much cheaper rate than any individual. Generics may be only $10 per prescription, but new name brands can cost as much as $45 per presciption.

HMOs pay a nominal, yearly stipend to their in-plan physicians. They also make money in the form of a co-pay from the patient for each visit. This does not amount to much and therefore, you will likely not get the cream of the medical crop. Many Physicians just will not take HMOs. HMOs also limit the type of medications that can be prescribed for you. I was taking Nexium for acid reflux disease (GERD). They banned that. I went down to Prilosec and older and somewhat less effective prescription medication. Soon they banned the use of this as well, but suggested that I continue to buy the over the counter form of Prilosec and pay for it myself. They included a coupon for 12 free over the counter pills (six days supply). Then I was on my own.

Another HMO shortcoming is that you have to get a Primary Care Physician (PCP). The PCP must be seen before you go to a specialist of any type. They must give you a "referral" or permission to see a specialist who is also in the HMO plan. You must see your PCP before going to a Hospital, unless it is admission via the Emergency Room. This procedure takes away precious time before you receive treatment. In my plan, Cigna Health Care the cost to me for a primary care visit is $15 and a specialist is $20. These are call co-pays. Other plans have different co-pay amounts.

Many medical problems are not covered at all. The HMO believe that treatment for those problems are elective and not required. Some nasty skin diseases are not covered because the HMO judged them to be cosmetic.
On the other hand my wife recently had a colon resection due to infected and leaking Diverticulitis. This was followed by Congested Heart Failure from the first operation. The total cost was over $50,000 but fortunately we only had to pay about $500 in total. $50,000 would have been ruinous to us. That is the good part of an HMO.

What is a PPO?

PPOs are Preferred Provider Organizations and have more flexibility than HMOs. They cost about the same premium or slightly less. You do not need a PCP if you have a PPO plan. You can see both in-plan and out-of- plan Doctors. No referrals are needed. Sounds great doesn't it? Here is the downside of a PPO.
First, there is often a larger co-pay amount for both Physicians visits and for prescriptions. Often there is a large deductible (about $500 to $1,000) before the PPO will start any payment for medical services such as Physician visits, tests and hospitalization. If you are very healthy you may not exceed this amount in a year. You will be paying whatever bills you receive under the deductible in full. On the other hand if you are very unhealthy, it might be to your advantage to have a PPO and use in-plan Physicians after.

If you use in-plan Doctors you have to pay a slightly co-insurance payment than an HMO co-pay. For out-of- plan Physicians this can be a very high fee. While each plan varies, the insurance may cover from 50% to 70% of out-of-plan costs. Make sure hospital stays are covered at 100% for a two or three week stay. If we had to pay 20% of the hospital and Physician expenses for my wife's operation and follow up care mentioned above, we would have had to pay as much as $5,000 to $10,000 rather than $500.

Just as with HMOs there may be a limited prescription drug list and limitations to the procedures they cover. PPOs coordinate better with Medicare benefits if you receive them.

Which Coverage Is For You?

It pays to take the time to determine which coverage is best for you. In my opinion, not having medical insurance is not a viable option because sooner or later you could face catastrophic costs. HMOs cover the most in the way of total costs, but you have to give up the flexibility if you opt for this type of insurance. PPOs are more flexible and may be fine for generally healthy young people with some safety net money in the bank. This is perhaps the second to third most important financial and health decision you have to make. Take your time in open enrollment periods. Often your company will have representatives on site for you to talk to.