Understanding Managed Care Plans

HMOs, PPOs, EPOs, and POS Plans

Managed Care - All managed care plans have a provider netwrok. SeanLocke/iStockphoto

Most Americans who have health insurance through their employer, the individual health insurance market, and even Medicare and Medicaid, are enrolled in some type of a managed care plan. The type of managed care plan you have may determine how you access and receive health care for you and your family, and what you will have to pay out of pocket each time you receive care.

What Managed Care Plans Cover

Managed care plans typically cover a wide range of health services such as preventive care and immunizations for adults and children, general checkups, diagnosis and treatment of illness (including necessary tests, doctors’ visits, prescription medications, and hospital care), and complete prenatal (pregnancy) and newborn care.

Additionally, most managed care plans offer some services for the diagnosis and treatment of mental health conditions and substance abuse problems (all individual and small group plans that are compliant with the Affordable Care Act cover mental health and substance abuse treatment as an essential health benefit).

Managed Care Cost Savings

Managed care plans try to save money by providing preventive health care services to help you avoid serious health problems. Many common chronic health conditions (such as diabetes, high blood pressure, and high cholesterol) can be prevented from getting worse if diagnosed and treated early.

Also, managed health plans save money by contracting with doctors and hospitals in your community to help control the fees they charge. These cost savings may help to somewhat hold down how much you and your employer pay each month for your health insurance premium.

Managed Care Networks

All managed care plans contract with doctors, hospitals, clinics, and other health care providers such as pharmacies, labs, x-ray centers, and medical equipment vendors.

This group of contracted health care providers is known as the health plan’s “network.” In some types of managed care plans, you may be required to receive all your health care services from a network provider. In other managed care plans, you may be able to receive care from providers who are not part of the network, but you will pay a larger share of the cost to receive those services.

A tip from Dr. Mike: If you receive all your care from providers who are in your health plan’s network you will have less out-of-pocket expenses and you will most likely not have to fill out any insurance forms or submit any claims to your health plan, as the medical provider will do that part for you.

Managed Care Out-of-Pocket Costs

Aside from your share of the monthly premium, you will most likely have to pay an annual deductible (how much you have to pay at the beginning of the year before your health plan “kicks in”), and coinsurance after you meet the deductible (but before you meet the plan's out-of-pocket maximum).

In addition to the deductible, most plans will require you to pay a copayment each time you see your doctor, go to the emergency room, or get a prescription filled.

The amount you have to pay in out-of-pocket costs is often linked to how much you pay in premiums. In general, a plan will have lower premiums if it requires that you use a network provider, and/or has a high deductible and high copayments (or requires you to pay the full cost of office visits). A plan that allows you to use any provider, and/or has a lower deductible and lower copayments, will generally have higher premiums.

Managed Care and Prescription Medications

Most managed care plans have a formulary, or list of drugs that they cover. Your health plan may only pay for medications that are on that list. Your copay or coinsurance amount for a prescription drug will depend on whether you get a generic medication, a brand name medication that is preferred by your health plan, or a brand name medication that is not preferred your health plan (note that some health plans, such as HSA-qualified high deductible health plans, will require you to pay the full cost of your medications before you've met your deductible, although you'll get the plan's discounted price instead of having to pay the retail price).

For example, if you have high cholesterol your copay may be $10 for simvastatin (a generic drug), $25 for Lipitor (the preferred brand name formulary drug), or $40 for Crestor (the non-preferred brand name formulary drug), although these specifics will vary considerably from one plan to another, since each plan has a different formulary, and they don't all place the same drugs in the same categories.

Additionally, your health plan may have lower copayments for prescription medications that you obtain through mail-order, rather than through a regular retail pharmacy.

Types of Managed Care Plans

There are four types of managed care plans, which are offered throughout the country by health insurance companies, including Medicare Advantage and Medicaid managed care plans. All of these plans use a provider network.

Health Maintenance Organizations (HMOs)
If you are enrolled in a health maintenance organization (HMO) you will need to receive all of your health care from a network provider in order to have coverage (except for emergency situations where you have to go to the nearest emergency room). HMOs require that you choose a primary care physician (most often an internist, family doctor, or pediatrician for your children) who is responsible for managing and coordinating all of your health care.

If you need care from a physician specialist in the network or a diagnostic service such as a lab test or x-ray, your primary care physician (PCP) will have to provide you with a referral. If you do not have a referral or you choose to go to a doctor outside of your health plan’s network, you will most likely have to pay all or most of the cost for that care.

Preferred Provider Organizations (PPOs)
A Preferred Provider Organization (PPO) is a health plan that has contracts with a network of "preferred" providers from which you can choose. You do not need to select a PCP and you do not need referrals to see other providers in the network.

If you receive your care from a doctor in the preferred network you will only be responsible for your plan's regular annual deductible and coinsurance, and copayments if applicable.

But if you get health services from a doctor or hospital that is not in the preferred network (known as going "out-of-network") you will pay a higher amount (the out-of-pocket maximum is often double when you go outside the network, and some plans don't cap your out-of-pocket costs at all if you use physicians and medical facilities that aren't in the plan's network). And, in many cases, you will need to pay the doctor directly and file a claim with the PPO to get reimbursed, since the out-of-network doctor has no relationship with your insurance company.

Point-of-Service Plans (POS)
A point-of-service (POS) plan is a combination of a health maintenance organization and a preferred provider organization. Typically, POS plans have a network that functions like an HMO – you pick a primary care doctor, who manages and coordinates your care within the network. POS plans also allow you to use a provider who is not in the network. However, if you choose to go out-of-network for your care, you will pay more.

These plans are known as point-of-service, because each time you need health care (the time or “point” of service), you can decide to stay in the network and allow your PCP to manage your care or go outside the network on your own without a referral from your PCP.

Exclusive Provider Organization (EPO)

An exclusive provider organization can also be viewed as a hybrid of a PPO and HMO. You can see any doctor in the plan's network, and don't need a referral from a primary care physician (this part is like a PPO). But with the exception of emergencies, there's no coverage for out-of-network care (this part is like an HMO).

Updated by Louise Norris.

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