Look Beyond the Alphabet Soup of Acronyms When Picking a Health Plan

Choosing a health insurance plan can be confusing, especially when the string of acronyms -- HMO, PPO, EPO, POS -- describing the various types of coverage look more like alphabet soup.

"The demands on consumers to do their homework and figure out exactly what they're buying are intense," says Sabrina Corlette, a senior research fellow at Georgetown University's Center on Health Insurance Reforms.

Even the traditional definitions associated with health plans are "breaking down," further complicating matters, she says. For example, some health maintenance organization plans now have broad provider networks, while some preferred provider organization plans offer fewer choices. "It can get complicated," Corlette says.

Yet taking the time to understand the difference between health insurance plans can help people chose the coverage that's right for their health care needs and budget, explains Christine Barber, a senior policy analyst at Community Catalyst in Boston.

"It's not so much about HMO versus PPO," Barber says, "as it is about looking through the specific plans and the network of providers to find the coverage that's right for you."

Getting Started

Sophie Stern, deputy director of the Best Practices Institute at the nonprofit Enroll America, says shoppers should "take stock of their health care needs before exploring coverage options."

Are you relatively healthy and seldom use medical care? Do you have asthma, diabetes, high blood pressure or another chronic medical condition that requires frequent visits to specialists and prescription medications? Do you prefer having a primary care physician to coordinate your health care needs, or would you rather see specialists on your own? The answers to these questions can narrow your pick of plans.

Next, consider out-of-pocket expenses. "People need to determine how much cost-sharing they're willing to bear based on their income and health needs," Barber says. "They might be willing to take on more cost-sharing if they can see the doctors they want." Overall, you pay lower out-of-pocket expenses if you stick to a plan's network of providers. Plans that cover out-of-network care come with higher cost-sharing.

Gerald Kominski, director of the Center for Health Policy Research at the University of California--Los Angeles, says people sometimes overlook cost-sharing matters because having access to out-of-network care "looks like a great option." But insurers typically only pay a small fraction of the actual cost of out-of-network care. "People don't fully understand the potential liability they face if they go outside the network," he says. "It can be very expensive."

Lastly, be prepared to carefully review the network of providers in each plan to ensure you have access to the doctors and facilities that matter to you. "Look at the network of providers and determine how the network might impact you given your health status and financial situation," Kominski says. For example, if a specialist you want to see is not in the network, you may want to consider choosing another plan.

Differentiating Between Plans

Now that you have a better sense of your health care needs and finances, it's time to compare plans. Most health insurance plans fall under four categories.

Health maintenance organization plans typically have lower monthly premiums and out-of-pocket expenses. But you're restricted to the doctors and hospitals in their network of providers. The plan won't pay for out-of-network care except in emergencies. You also need to select a primary care physician, who must make a referral if you want to see a specialist. If your current physician is not in the plan, you'll need to find another doctor within the network or pay out-of-pocket to see your physician.

Make sure to compare provider networks among different HMO plans, too. "There may be a HMO with a skinny network that you don't want and another HMO with a robust network that works for you," Barber says.

Preferred provider organization plans offer more flexibility with a broader network of doctors and facilities, but they tend to have higher monthly premiums and cost-sharing. You pay lower out-of-pocket costs if you use the plan's preferred provider network. Unlike an HMO, people with a PPO plan can use out-of-network providers for some services with higher cost-sharing expenses. You also don't need a referral from a primary care physician to see a specialist in the network.

Some PPO plans may have tiers within the preferred network of providers, each with varying out-of-pocket costs. The plans encourage consumers to use certain tiers by offering lower copayments. "We've seen plans that offer up to four tiers of providers, with each successive tier having higher cost-sharing for the consumer," Corlette says. "But technically, all of those providers are part of the network."

Exclusive provider organization plans require enrollees to use the doctors and hospitals within its designated network. There's no coverage for out-of-network care. Unlike an HMO, an EPO plan doesn't require permission from a primary care physician to see a specialist as long as the provider is a part of the network. EPO plans typically have lower premiums and out-of-pocket costs than HMO and PPO plans.

Point of service plans are hybrid plans that operate like an HMO but have a PPO feature to allow for some out-of-network care with larger cost-sharing. Many POS plans require a referral from a primary care physician for in and out-of-network care.

Given the complexity of choosing a health plan, Stern and other advocates urge consumers to seek expert advice by phone or in person. "It's absolutely critical for people to get in-person assistance because every situation is different," she says.