What Makes EPO Health Plans Different from HMOs and PPOs?

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When picking a health plan, comparing an EPO vs. HMO, or an EPO vs. PPO, can be confusing. Think of EPO health insurance as a cross-breed between an HMO and a PPO; an EPO has some of the characteristics of a PPO and some of the characteristics of an HMO.

 EPOPPOHMO
What's the Difference Between EPOs, PPOs, and HMOs?
Pays for out-of-network care?NoYesNo
Requires pre-authorization?YesYesNo
Requires a primary care physician who acts as a gatekeeper to access other services?NoNoYes
Requires referrals to see a specialist?NoNoYes
How are doctors paid by the health plan?Paid only when they provide a service. More services = more $.Paid only when they provide a service. More services = more $.Paid the same amount each month whether they provide lots of services or none.

EPO vs. HMO

EPOs are like HMOs in that you must use your EPO’s provider network when you get care. There’s no partial-coverage for out-of-network care. Realizing that EPO stands for exclusive provider organization will help you remember this characteristic, since you must use the health plan’s provider network exclusively. If you accidentally get anything other than emergency care from an out-of-network health care provider, your EPO won’t pay.

EPOs differ from HMOs in that you aren’t required to have a primary care physician. If you voluntarily choose to have a PCP, your PCP doesn’t act as a gatekeeper to other services like PCPs do in HMOs.

EPOs also differ from HMOs in that your EPO won’t make you get a referral to see a specialist. If you feel like you need to see an orthopedic surgeon for your knee pain, you just make an appointment with an in-network orthopedic surgeon; no jumping through hoops is involved.

EPO vs. PPO

EPOs are like PPOs in that you have the freedom to see specialists without a referral, but you must get expensive services pre-authorized. By requiring you to get permission from the health plan in advance of expensive services, an EPO makes sure it’s only paying for things that are truly medically necessary.

Each EPO makes its own rules about which services require pre-authorization. As a rule of thumb, expect that things like hospitalization, surgery, procedures, expensive treatments, expensive medications, MRIs and CT scans, and home medical equipment like oxygen may need pre-authorization.

As in PPOs, your EPO physician will usually volunteer to get health care services pre-authorized for you. However, the responsibility to get pre-authorization is ultimately yours, not your doctor’s. If you fail to get pre-authorization for a service that requires it, the EPO can refuse to pay for the service even if it’s later determined that the service was medically necessary and you got it from an in-network provider.

EPOs differ from PPOs in that they tend to be more economical. Frequently, EPOs will have lower monthly premiums or lower cost-sharing than PPOs offering the same coverage.

EPOs also differ from PPOs in that EPO members don’t have the luxury of paying a little more to get care out-of-network.

If you get care out-of-network in a PPO, you’ll have to pay a higher coinsurance rate, buy your PPO will still pay part of the bill. If you get care out-of-network in an EPO, you’ll be footing the entire bill.

Another Comparison: How Your Doctor Is Paid in an EPO vs. HMO or PPO

It would be nice if there were no connections between health care and money, but in the real world medical care must be paid for. Understanding how your doctor gets paid can alert you to situations in which more services are being recommended than are necessary, or situations in which you might need to push for more care than is being offered.

In an HMO, the doctor is either an employee of the HMO or is paid by a method called capitation. Capitation means the doctor is given a certain amount of money each month for each of the HMO members he or she is obligated to care for. The doctor gets the same amount of money for each member whether that member requires services that month or not.

For example, let's say Dr. Smith gets $20 per month per HMO member. Mr. Jones saw Dr. Smith 12 times in May. Dr. Smith gets a total of $20 from the HMO in May for providing all of Mr. Jones’ care, even though it clearly cost more than $20 to see Mr. Jones 12 times.

Mrs. Jones is also an HMO member and also Dr. Smith’s patient. Mrs. Jones didn't see Dr. Smith that year. Dr. Smith was paid $20 per month all year long by the HMO for Mrs. Jones, even though he never provided any medical care to her.

Although capitated payment systems discourage ordering tests and treatments that aren’t necessary, the problem with capitation is that there’s not much incentive to order tests, treatments, or follow-up visits that are necessary, either. In fact, the most profitable practice would have a ton of patients, but not provide services to any of them.

Ultimately, the incentives for providing necessary care in an HMO are an honest desire to provide good patient care, a decrease in long-term costs by keeping HMO members healthy, public quality and customer-satisfaction rankings, and the threat of a malpractice suit.

In EPOs and PPOs, doctors are paid each time they provide a service. The more patients they see a day, the more money they make. Moreover, the more things a doctor does during each visit, or the more complex medical decision-making a visit requires, the more the doctor is paid for that visit. This type of payment arrangement is known as fee-for-service.

The bad thing about a fee-for-service payment arrangement is that it provides a financial incentive for the doctor to provide more care than may be necessary. The more follow-up visits you require, the more money the doctor makes. Also, since the doctor is paid more for complex visits, it's no surprise that patients have lots of blood tests, X-rays, and a long list of chronic problems.

Because people may get more care than necessary, fee-for-service payment arrangements lead to escalating health care costs and higher health insurance premiums.

Whether you choose an HMO with a capitated payment system or an EPO or PPO with a fee-for-service system, you’ll probably get good care. However, understanding how your health plan works, how your doctor gets paid by your health insurance company, and the pros and cons of that payment arrangement will help you be a wiser health care consumer and a more empowered patient in the long run.

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