B. Managed Care Plans

1. Health Maintenance Organizations (HMOs)

A Health Maintenance Organization (HMO) provides comprehensive health care services to enrolled members within a defined service area in exchange for a fixed, prepaid premium. HMOs combine the financing and delivery of health care into a single organization and place heavy emphasis on preventive care as a means of controlling long-term costs.

• Limited service area — an HMO only covers members who live or work within its defined geographic service area, and typically only pays for care obtained within that area (except for emergencies).
• Limited choice of providers — members must generally receive care from physicians and facilities that participate in the HMO's network.
• Copayments — members pay a small, fixed dollar amount for office visits and other services at the time care is provided.
• Prepaid, capitated basis — providers are typically compensated through capitation, a fixed amount per enrolled member per month, regardless of the number of services the member actually uses.
• Preventive care — routine checkups, immunizations, and wellness services are emphasized and often provided with little or no cost sharing, since preventing illness is less expensive than treating it.

The Gatekeeper Concept

Each HMO member selects a primary care physician (PCP), who acts as the member's gatekeeper. The PCP coordinates the member's overall care and must issue a referral before the member can see a specialist. This referral system is intended to prevent unnecessary and costly specialist visits.

Hospital Services and Emergency Care

HMOs arrange for hospital services through contracts with participating hospitals. Emergency care is covered even outside the HMO's service area or network, since a member experiencing a true emergency cannot reasonably be expected to seek out a network provider first.

Open Panel vs. Closed Panel

In a closed panel HMO, physicians are employees of, or under exclusive contract with, the HMO and do not typically treat non-HMO patients. In an open panel HMO, independent physicians in private practice contract with the HMO to treat its members in addition to their own patients.

2. Preferred Provider Organizations (PPOs)

A Preferred Provider Organization (PPO) is formed when a group of providers contracts with an insurer, employer, or other sponsor to deliver services at discounted, pre-agreed fees. Unlike an HMO, a PPO does not require members to select a primary care physician, and no referral is required to see a specialist.

There are typically three parties to a PPO arrangement: the providers (who agree to discounted fees in exchange for a higher volume of patients), the PPO sponsor (which administers the network), and the enrollees (who receive richer benefits for staying in-network). Members may use any provider they choose, but pay less out of pocket — through lower copayments and coinsurance — when they use an in-network (preferred) provider, and pay more when they go out-of-network.

3. Point-of-Service (POS) Plans

A Point-of-Service (POS) plan combines features of both HMOs and PPOs. Like an HMO, members typically select a primary care physician for coordination of routine care; like a PPO, members may choose to go outside the network at the point that care is needed, though at a higher cost. Because of this flexibility, a POS plan is sometimes referred to as an open-ended HMO.

4. Exclusive Provider Organizations (EPOs)

An Exclusive Provider Organization (EPO) is a managed care plan that, like an HMO, restricts members to a network of contracted providers for non-emergency care, but, like a PPO, generally does not require a primary care physician or referrals. Providers under an EPO are compensated on a fee-for-service basis rather than through capitation.