Managed care structures: HMO, PPO, and POS plans

Managed Care Structures: HMO, PPO, and POS

Managed care plans combine the financing of health care with the delivery of health care. Instead of simply reimbursing whatever provider the insured chooses, a managed care organization contracts with a defined group of physicians, hospitals, and other providers — the network — and steers members toward that network through benefit design.

All three of the classic structures share the same basic tools: a contracted provider network, negotiated fee arrangements, utilization review, and an emphasis on preventive care. What separates them is how much freedom the member has to go outside the network, and whether a gatekeeper controls access to specialists.

Health Maintenance Organization (HMO)

An HMO is the most tightly managed structure. Key features:

• The member selects a primary care physician (PCP), who serves as the gatekeeper. Access to specialists normally requires a referral from the PCP.
• Care must generally be received from network providers. Services obtained outside the network are typically not covered at all, except for true emergencies and urgently needed care away from the service area.
• Benefits are usually expressed as flat copayments rather than deductibles and coinsurance, so out-of-pocket cost sharing tends to be low and predictable.
• HMOs operate within a defined service area, and members are enrolled rather than merely insured — the plan is responsible for arranging the care, not just paying for it.
• Providers are often paid on a capitation basis (a fixed amount per member per month) or under negotiated fee schedules, which shifts some financial risk to the provider and creates an incentive for cost-effective, preventive care.

Trade-off to remember: an HMO offers the lowest cost and the least freedom of choice.

Preferred Provider Organization (PPO)

A PPO is an open-panel, dual-option arrangement:

• The plan assembles a list of preferred providers who have agreed to discounted charges.
• The member may use any provider. Using a preferred provider produces the higher level of benefits (lower deductible, lower coinsurance, no balance billing above the negotiated rate). Going outside the network is still covered, but at a reduced benefit level — higher deductible, higher coinsurance percentage, and possible balance billing.
• No gatekeeper. Members ordinarily self-refer to specialists without PCP authorization.
• Cost sharing is usually structured as a deductible plus coinsurance, in the style of traditional major medical coverage.

Point-of-Service (POS) Plan

A POS plan is a hybrid that layers PPO-style out-of-network coverage onto an HMO chassis:

• The member chooses a PCP and, when care is coordinated through that PCP inside the network, receives HMO-level benefits (low copayments, little or no deductible).
• The member may self-refer outside the network or bypass the PCP, but then the claim is paid at a lower, indemnity-style benefit level with a deductible and coinsurance.
• The name reflects the concept: the member decides which benefit level applies at the point of service — each time care is sought.

How to tell them apart on an exam

Focus on two questions. Is there a gatekeeper PCP? HMO yes, POS yes, PPO no. Is out-of-network care covered at all? HMO essentially no, PPO yes at reduced benefits, POS yes at reduced benefits.

In Texas, health benefit plans of these types are regulated under Title 8 of the Insurance Code, which governs health insurance and other health coverages, while individual and group accident and health policy provisions appear in Chapter 1201.