What kind of plan is going to suit my company? HMO vs. PPO
Once the question whether a company needs to implement a health plan, one of the next logical questions winds up being ‘What kind of plan do we need? In Massachusetts, the most common types of scenarios boil down to an HMO (Health Maintenance Organization) versus a PPO (Preferred Provider Organization). The POS (Point of Service) plan is a less common hybrid that is really a discussion for itself, therefore for the purposes of this entry, I will stick to the HMO vs. PPO argument.
First off, let’s cut right to the chase and talk about cost. This is here the rubber meets the road for a company anyway in terms of affordability anyway, so let’s lay it out there. As a general rule, a PPO is more expensive than an HMO plan. The difference in cost between the two can vary, especially as you compare different states. With that said, I will stick to the MA market. In my experience, if you have the same ‘apples to apples’ benefits design where one is an HMO and one is a PPO, you can use a good rule of thumb of 10-15% more expensive on average.
This doesn’t answer the first question though, ‘What’s the best plan for my company?’ So what are the primary differences, aside from cost?
First there is the network issue. With HMO’s you can go to an established network of doctors, that’s it. If you go outside your network, outside of an exceptional circumstance, you are going to pay the bill. PPO’s also have networks, very big nationwide ones in fact, and if you are within that expanded network, you will be subject to the cost associated with your plan. But you can also go outside your PPO network if really want to. You’ll likely wind up paying more, 20% is not uncommon, but it’s there.
Second is the referral issue. With HMO’s you have a Primary Care Physician, or PCP, this is your service gatekeeper. Your PCP is typically the doctor you’ve always gone to, s(he) will be the one to refer you to other services such as specialists or for ongoing testing. The referral is not unlike getting a ‘note’ or a ‘pass’. PPO’s have no referral issues, meaning you can self-refer for services such as specialist visits or testing. Does your PCP want to be a pain about letting you see a specialist? If you have a PPO it’s a non-issue, self-refer. If you have an HMO, maybe you want to find a PCP who isn’t a pain.
One of the primary drivers that determines whether a company implements one or another is where do the employees live. If you have a company where you have employees in different states, you’re going to likely need a PPO. Some vendors have expanded HMO networks, so let’s say that if you have employees outside of New England, you’ll need a PPO. If all of your employees live within a geographic area that is serviced by an HMO network, then you have the choice of either an HMO or PPO on the merits and needs and budgets of your employees moreso than geopgraphy.
A caveat to this is in cases where certain parameters are met, a company can have what is called a split option plan, meaning you can have both a PPO and an HMO to choose from. This is common where perhaps you have 1 or 2 employees outside the network are, but still need to make sure they are taken care of. In some cases, the desire for the freedom on a PPO versus HMO will supercede the cost issue and a company will implement the option even if the geography says you don’t need to. Issues such as company and enrollment size can impact this scenario though.
I hope you found this post helpful, further details and discussion is part of any company sponsored health plan implementation. If I can be of any assistance in that context, answer a question, or run you a quote on a plan, please don’t hesitate to reach out to me, more than happy to help.
Nate Therrien
Founder, Business Insurance & Benefits Services of MA
978-400-7014, [email protected]