The two major types of managed care are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). It is important to be aware that there may be certain variations, including cost.

Health Maintenance Organizations (HMOs)

HMOs have their own specific networks of health care providers, including doctors, hospitals and other services, that they are affiliated with. Plan members must choose from a list of these providers in order to receive full coverage. They must also pick a primary-care physician to monitor and direct their care. Preventive care is covered from childhood through the senior years. Members who go to non-network physicians or facilities must usually pay the bills themselves.

No matter how much or how little care HMO members actually receive, they pay a fixed monthly premium and a small fee–between $5 and $15–each time they visit a doctor (in some plans, members pay nothing at all when they see a doctor). It is the physician’s responsibility to file claims with the HMO.

There are five different types of HMO. Here is a basic description of each:

1.        Staff Model. An HMO that hires its own doctors to practice in the plan’s facilities. The physicians get a ready-made practice, with relatively fixed hours and a predictable income.

2.        Group Model. An HMO that contracts with one or more in- dependent group practices of physicians to provide ser- vices to its enrollees often on an exclusive basis, meaning the group can only treat that plan’s members.

3.        Network Model. Similar to a group model, this type of HMO contracts with one or more independent group practices of physicians to provide services to its enrollees. But unlike the group model, this is a non- exclusive arrangement and physicians can treat patients who are not members of the plan.

4.        Independent Practice Association (IPA). This type of HMO (sometimes called an “HMO without walls”) contracts with individual physicians to care for plan members in their own private offices. Physicians are free to con- tract with more than one plan and usually provide care on a fee-for-service basis as well.

5.        Point Of Service Plan (POS). Sometimes called “open HMOs,” these increasingly popular plans are similar to IPAs. POS members have the option of going to doctors who are not part of the plan’s network. The catch is that there’s a significant financial penalty that includes paying a deductible, a higher co-payment and getting a lower reimbursement rate. For example, if a woman sees an in-network primary-care physician, she might only pay $10 per visit, but if she goes to some one outside the network for care, she may have to foot up to 30 percent of the bill, and her deductible could run as high as $500 to $1,000. There are so many POS plans in the area that we have differentiated them from HMOs in the report card data.

Preferred Provider Organizations (PPOs)

PPOs–a compromise between the fee-for-service system and HMOs–are growing in number. Like HMOs, these plans have networks of physicians and hospitals, and plan members pay a monthly premium and small charges (copayments) at the time service is received. Unlike many HMOs, PPOs will pay a portion of the costs incurred if a member chooses a doctor or facility outside of the plan’s network. For instance, plan members might receive from 80 to 100 percent reimbursement for treatment by a PPO provider, but only 60 to 70 percent reimbursement for treatment by a physician outside the network. PPOs may require doctors to obtain the plan’s approval before sending patients to the hospital, but they don’t require members to choose a primary-care physician. People who join a basic PPO, can go to any doctor in the network whenever they want.

Health Plan Options Compared

Type Of Plan	What It Offers	Methods Of Cost Control	Advantages To Patients	Disadvantages To Patients	Annual Premiums (Employee)*
Traditional Indemnity	Services from any doctor or hospital	None except screening for fraudulent claims	Choice of any doctor or hospital	Claim forms to file; preventive services not covered	$3,739
Indemnity with Utilization Review	Services from any doctor or hospital	Prior approval required for hospitalization and certain outpatient procedures	Choice of any doctor and access to any hospital after prior approval	Additional paperwork to get approval for some services; preventive services not covered	N/A
Preferred Provider (PPO)	Services from any doctor or hospital, but at lower cost to those using network providers	Discounts negotiated with doctors and hospitals; prior approval required for hospitalization and some outpatient procedures	Higher rate of reimbursement when using doctors and hospitals in the network	Higher cost for services outside network; additional paperwork to get approval of some services; preventive services are not always covered	$3,293
HMO – Point of Service (POS)	Services from any doctor or hospital, but at lower cost to those using network providers	Within network, family doctors manage utilization of services; hospital and physician fees are discounted	Within network, lower co-payments; preventive care covered; no claim forms	Higher cost for services outside network; additional paperwork to get approval of some services	$3,494
HMO – Independent Doctors (IPA)	Services from any hospital or independent doctor affiliated with HMO	Family doctors manage services; hospital and physician fees are discounted	Low co-payments; preventive care covered; no claim forms	Must use approved doctors and hospitals	$3,185**
HMO – Staff/Group Model	Services from hospitals under contract with HMO or salaried doctors at the HMO’s own medical centers	Family doctors at HMO medical centers manage services; hospital fees are discounted	Low co-payments; preventive care covered; no claim forms	Must use the HMO’s medical center doctors and hospitals	$3,185**

N/A = Not Available
*1996 Survey of employer-sponsored health plans, Foster Higgins, Princeton, NJ
**Study did not distinguish between IPA and staff/group HMOs. Traditional indemnity plans are 12% more expensive than HMO plans.