Planning to enroll in a PPO health plan? Make sure it suits your needs by understanding how it works. Already a PPO member? Understanding how it works can help you use health insurance effectively and avoid costly mistakes.
PPO stands for Preferred Provider Organization . PPOs get their name because they have lists of health care providers that they prefer to use for you. If you get health care from these preferred providers, you pay less.
PPOs are a type of managed care health plan, just like your extended family members, health maintenance organizations, or HMOs . Other types of managed care plans, including POS (Point of Service) and EPO (Exclusive Provider Organization) .
How Managed Care Plans Lower Costs
All managed care plans have rules about how you should receive your health care. These include things like staying online, if you need a referral from your primary healthcare provider, and if you need prior authorization for certain services. If you don't follow the rules of a managed care plan, the managed care plan will either not pay for this treatment or you will be penalized with most of the cost of care out of your own pocket.
These rules are in effect for managed care plans to help keep health care costs under control. Rules usually do this in two main ways:
- They limit your health care services to only those things that are medically necessary or that lower your long-term health care costs, such as preventive services.
- They restrict where you can get medical services and negotiate discounts with providers in their network.
How does the PPO work?
PPOs work like this:
Shared cost : you pay a part; PPO pays part. PPO uses cost sharing to keep costs under control. When you visit a health care provider or use health care services, you pay a portion of the cost for those services yourself in the form of deductibles, coinsurance, and copayments. Cost sharing is part of the PPO system to make sure you really need the medical care you receive. When you need to pay something for your care, even a small copayment, you are less likely to use unnecessary services lightly (however, there is concern that even small cost-sharing may also be a roadblock preventing some plan members from get the health care they need; some health care reform advocates have proposed a transition to a no-cost-sharing system for health care).
Cost sharing helps offset the cost of your treatment. The more you pay to cover the cost of your care, the less your health plan will pay and the less you can withhold your monthly premiums.
Provider Networks : If you use a PPO provider network, you pay less. PPO restricts who or where you get your health care from, through the network of health care providers with whom it negotiated discounts. The PPO network includes not just doctors and other healthcare providers, but every type of healthcare service imaginable, such as laboratories, X-ray rooms, physical therapists, medical device providers, hospitals, and ambulatory surgery centers.
PPO offers you an incentive to obtain health care from its provider network by charging you a higher deductible and higher copays and / or coinsurance when you receive care outside of the network. For example, you may have a $ 40 copayment for an in-network visit, but a 50% coinsurance fee for an out-of-network visit. If an out-of-network doctor charges $ 250 for an office visit, you will pay $ 125, not the $ 40 copay you would pay if you had a local healthcare provider. And the maximum out-of-pocket limit is usually at least double if you get care out-of-network. In some cases, there is no cash limit for out-of-network care, which means that patient costs can continue to increase without limit (ACA cash limits apply only to network cost).
Also, out-of-network providers can balance your bill after your PPO pays part of the claim, even if you have already paid the copayment required by your health plan. This is because the out-of-network provider has no contract with your insurer and is not required to accept the insurer's reimbursement rates as payment in full.
However, even though you pay more when you use out-of-network providers, one of the benefits of the PPO is that when you use out-of-network providers, the PPO contributes to the cost of those services. This is one of the differences between PPO and HMO. The HMO will pay nothing if you receive care outside of the network, except in an emergency.
Prior Authorization : In many cases, the PPO will ask you to provide prior authorization for non-emergency services. Preauthorization is a way the PPO makes sure you only pay for what is actually needed, so insurers may require you to get preauthorization before undergoing expensive tests, procedures, or treatments. If the PPO requires prior authorization and you have not received it, the PPO may deny your request. Therefore, it is important to read the details of your policy to understand whether you need prior authorization before receiving certain health care services.
PPOs vary in terms of tests, procedures, services, and treatments that require a prior authorization, but you should suspect that you will need a prior authorization for anything expensive or something that can be done at a lower cost in a different way. For example, you can fill prescriptions for older generic drugs without prior authorization, but you must get approval from your PPO for an expensive brand name drug to treat the same condition.
When you or your healthcare provider request a prior authorization from the PPO, the PPO will likely want to know why you need this test, service, or treatment. Basically, this is an attempt to make sure that you really need this help and that there is no cheaper way to achieve the same goal. For example, when your orthopedic surgeon requests prior authorization for knee surgery, your PPO may ask you to try physical therapy first. If you try physical therapy and it doesn't fix the problem, the PPO may pre-authorize your knee surgery.
No PCP Requirement – Unlike HMOs, you do not need to have a PCP with a PPO. You can see a specialist directly without a referral from a PCP . However, depending on your situation, you may need pre-approval from your insurance company, so just in case you'll want to contact your PPO before scheduling an appointment with your doctor.
Difference between PPO and other types of health insurance
Managed care plans like HMOs, Exclusive Provider Organizations ( EPOs ), and Point of Service (POS) plans differ from PPOs and from each other for several reasons. Some pay for off-chain services; some do not. Some have minimal cost sharing; others have high deductibles and require large coinsurance and copayments. Some require a PCP to act as your guardian, allowing you to get medical care only with a referral from your PCP; others do not. Also, PPOs are often more expensive (for a comparable cost-sharing plan) because they give you more flexibility in which health care providers you can use.