What the employer and employees should know before getting into a PPO plan
The heading to this post may seem a bit ominous, but the truth about Preferred Provider Organizations (PPOs) is that they are great plans that, while in the right hands, can offer some very beneficial options.
To begin, what is a Preferred Provider Organization (PPO)
A PPO is a medical health care policy which provides the PPO member the ability to receive services from in-network physicians without referrals from a primary care physician (normally) and gives the member the ability to seek services with out-of-network doctors and hospitals (which is great for employees that want a family doctor they have always used and trust), although it comes at a higher cost (out-of-network costs are greater than in-network costs because the insurance carrier has only contacted with in-network doctors and hospitals, so the out-of-network will have a non-contracted rate for services which will mostly cost more, and will definitely be less covered by your insurance carrier leaving you with a larger bill).
The Pros and Cons of PPOs – The Double Edged Sword
PPO’s consumer choice is definitely nice to have, however, it is a double edged sword, and the pros and cons related to PPOs are seen in this “consumer choice”. Here is an example of what I mean by “double-sided sword” of in-network versus out-of-network:
Meet James, a PPO member that stays in-network
James is a PPO member who is going to Hospital XYZ who his insurance contracts with as well as the doctors and services he needs. In-network service is contracted to cost $5000, which James will pay 20% coinsurance for (normally, after the deductible is met if there is one. Some plans, such as some carriers Platinum plans, don’t have deductibles.) Assuming the deductible is already paid out; this service would cost James 20% of $5000, so $1000.
Meet David, a PPO member that went out-of-network
David, who is also a PPO member who happens to be insured by a different carrier than James, goes to the same hospital James goes to for the same services, but his insurance company has not contracted with the hospital, services, or doctors there. The same service James received is now offered to David, but at a non-contracted rate of $8000. Again, if David’s service first requires him to reach a deductible (generally speaking, it will, and out-of-network deductibles are much higher than in-network deductibles) then David’s insurance will receive the bill for this out-of-network service, and they may choose to only pay the portion that they normally contract this procedure for, which would be $5000 in this case. Now, David would have to pay not only a higher out-of-network coinsurance of 40% (let’s assume his plan stated this), but David must also pay for the $3000 that the insurance carrier didn’t cover, which David is 100% responsible for paying. So, David now has incurred a cost of 40% of $5000 ($2000), but also $3000 for the out-of-network service that the insurance company didn’t pay for because they only reimbursed David for what the carrier uses as the contracted rate that they would get from the same services, doctors, and hospitals, in network.
Whenever I explain the situation David was in to clients or employees, they usually say; “Well, I have an out-of-network, out-of-pocket maximum of $X. So I can only be billed up to that amount. Why should I care?”
The reason they should care, as I explain to them, is that your out-of-pocket maximum for out-of-network really isn’t an out-of-pocket maximum because the insurance carriers don’t always have to abide by the out-of-network, out-of-pocket maximum, and in most cases, if you go out of network and the bill is very high, you will have a good chance of paying for almost the entire bill.
Broker Tip: Understand the consequences of going out of network. Going out of network for non-emergency situations is not always a good decision, and in fact, it can cost you a lot more money than you think due to penalties (In David’s case, the $3000 was a penalty because his surgery exceeded the normal contracted cost of the service from his specific carrier’s point of view).
Although members of PPOs don’t usually need referrals from their primary care physicians (PCPs) to visit a specialist, using PPOs can be more time consuming to the member, solely because the member has to research and find out if the services, doctors, or hospitals they want to visit are contracted under their insurance carrier.
PPOs and Coinsurance
Lastly, PPOs normally have coinsurance for services instead of copayments, which means that the member will be normally paying a portion of the medical costs instead of a fixed amount of money (instead of paying $350 for a service, PPOs normally will have coinsurances such as 20% for the service, meaning that they will be covered for 80%, but then have to pay the rest).
In summary, Preferred Provider Organizations are medical health plans that allow the member to go in-network (doctors, hospitals, services), or out-of-network (not contracted with insurance carrier) without the need of the primary care physician’s referral. This choice can be especially helpful if you have a specific injury and need to seek out a specialist that deals with those injuries (if you have a knee injury, you can go to a knee specialist instead of waiting for a referral). PPOs offer choice to the consumer, and they allow the members to put their health into their own hands, however, this could cost them money if they didn’t research the doctors, services, or hospitals they are seeking that turn up to be not contracted with their insurance carrier, and are then out-of-network. Also, PPOs’ medical services are normally paid with coinsurances, which could easily run more expensive than copayments which are found in HMOs. Thank you for reading, and if you have any questions, feel free to contact me via the contact page, or add a comment below. Have a great day!
Additional Disclaimer – Although I am an Insurance broker and a professional in the field, the Health Care laws are ever changing, especially in the age of the Affordable Health Care Act, and the laws, information, opinions, or understandings that I have wrote about may be obsolete by the time you come across them and I take no legal responsibility for what actions you may or may not take because of it. To keep yourself safe, please seek updated professional advice, because changes are happening and I would like to keep everyone safe from any misleading or dead information. Please check out the “Terms and Conditions” page for more information and/or bookmark my blog for upcoming changes and updates to the ACA. Thank you for reading, and have a great day!