HMO, PPO, EPO, POS: Which Plan Is Best?

	Requires PCP	Requires referrals	Requires pre-authorization	Pays for out-of-network care	Cost-sharing	Do you have to file claim paperwork?
HMO	Yes	Yes	If required, PCP does it for the patient	No	Typically lower	No
POS	Yes	Yes	Not usually; if required, PCP likely does it; out-of-network care may have different rules	Yes, but requires PCP referral	Typically lower in-network, higher for out-of-network	Only for out-of-network claims
EPO	No	Usually not	Yes	No	Typically lower	No
PPO	No	No	Yes	Yes	Typically higher, especially for out-of-network care	Only for out-of-network claims

Physician Requirement

Some types of health insurance require you to have a primary care physician. In these health plans, the role of the PCP is so important that the plan will assign a PCP to you if you don’t quickly choose one from the plan’s list. HMO and POS plans require a PCP.

In these plans, the PCP is your main healthcare provider who also coordinates all of your other healthcare services. For example, your PCP coordinates services you need, like physical therapy or home oxygen. They also coordinate the care you receive from specialists.

PPOs do not require you to have a PCP. In most cases, EPOs also do not require a PCP, but some do (such as an EPO offered by Cigna in Colorado that does require a PCP and referrals from the PCP for specialty services).

In plans without a PCP requirement, getting access to specialty services may be less of a hassle, but you have more responsibility for coordinating your care. EPO and PPO plans generally do not require a PCP, but as noted above, there are exceptions.

Referral Requirement

Generally, health plans that require you to have a PCP also require you to have a referral from your PCP before you see a specialist or get any other type of non-emergency healthcare service.

Requiring a referral is the health insurance company’s way of keeping costs in check by making sure you really need to see that specialist or get that expensive service or test. 

Drawbacks to this requirement include delays in seeing a specialist and the possibility of disagreeing with your PCP about whether or not you need to see a specialist. In addition, the patient may have additional costs due to the copay required for the PCP visit as well as the specialist visit.

Benefits to the requirement include an assurance that you’re going to the correct type of specialist and expert coordination of your care. If you have a lot of specialists, your PCP is aware of what each specialist is doing for you and makes sure the specialty-specific treatments aren’t conflicting with each other.

Although it’s typical for HMO and POS plans to have referral requirements, some managed care plans that have traditionally required PCP referrals have switched to an “open access” model that allows members to see specialists within the plan’s network without a referral.

As noted above, some EPO plans do require referrals, even though that’s not the norm for that type of plan. So although there are generalities about managed care plans, there’s no substitute for reading the fine print on your own plan or the plans you’re considering.

Preauthorization

A preauthorization or prior authorization requirement means the health insurance company requires you to get permission from them for certain types of healthcare services before you’re allowed to get that care. If you don’t get it pre-authorized, the health plan can refuse to pay for the service.

Health plans keep costs in check by making sure you really need the services you’re getting. In plans that require you to have a PCP, that physician is primarily responsible for making sure you actually need the services you’re getting.

Plans that don’t require a PCP (including most EPOs and PPO plans) use preauthorization as a mechanism to reach the same goal: The health plan only pays for care that’s medically necessary.

Plans differ as to what types of services must be preauthorized but almost universally require that non-emergency hospital admissions and surgeries be pre-authorized.

Many also require pre-authorization for things like magnetic resonance imaging (MRI) or computerized tomography (CT) scans, expensive prescription drugs, and medical equipment such as home oxygen and hospital beds.

Pre-authorization sometimes happens quickly and you’ll have the authorization before you even leave the healthcare provider’s office. More often, it takes a few days. In some cases, it can take weeks.

Out-of-Network Care

HMOs, PPOs, EPOs, and POS plans all have provider networks. This network includes doctors, hospitals, labs, and other healthcare providers that either have a contract with the health plan or, in some cases, are employed by the health plan. Plans differ as to whether you’ll have coverage for healthcare services from providers who aren’t in their network.

If you see an out-of-network healthcare provider or get your blood test done at an out-of-network lab, some health plans won’t pay. You’ll be stuck paying the entire bill for the care you received out-of-network.

The exception to this is emergency care. Managed-care plans will cover emergency care received in an out-of-network emergency room as long as the health plan agrees that the care was truly necessary and constituted an emergency.

Note that the out-of-network emergency providers can still bill you for the difference between what they charge and what your insurer pays, and this can leave you on the hook for a significant amount of money.

In other plans, the insurer will pay for out-of-network care. However, you’ll have to pay a higher deductible and/or a larger percentage of the cost than you would have paid if you’d received the same care in-network. 

Regardless of the plan design, out-of-network providers are not bound by any contracts with your health insurance company. Even if your POS or PPO insurance pays a portion of the cost, the medical provider can bill you for the difference between their regular charges and what your insurance pays.

If they do, you’re responsible for paying it. This is called balance billing. More than half of the states have enacted legislation to protect consumers from balance billing in emergencies and in situations where the patient unknowingly receives treatment from an out-of-network provider while at an in-network facility. But make sure you understand your state’s rules and whether they apply to your health plan.

Cost-Sharing

Cost-sharing involves paying for a portion of your healthcare expenses—you share the cost of your healthcare with your health insurance company. Deductibles, copayments, and coinsurance are all types of cost-sharing.

Health plans differ in what type and how much cost-sharing they require. Historically, health plans with more restrictive network rules have had lower cost-sharing requirements, while health plans with more permissive network rules have required members to pick up a larger part of the bill via higher deductibles, coinsurance, or copayments.

But this has been changing as time goes by. During the 80s and 90s, it was common to see HMOs with no deductible at all. Today, HMO plans with $1,000+ deductibles are common (in the individual market, HMOs have become the predominant plans in many areas and are frequently offered with deductibles of $5,000 or more).

In plans that pay a portion of your costs, when you see out-of-network providers, your out-of-pocket charges will generally be quite a bit higher (usually double) than they would be if you saw in-network healthcare providers. So, for example, if your plan has a $1,000 deductible, it might have a $2,000 deductible for out-of-network care.

The upper limit on what you’ll have to pay in out-of-pocket costs (including coinsurance) will likely be considerably higher when you go outside your plan’s network. It’s also important to realize that some PPO and POS plans have switched to an unlimited cap on out-of-pocket costs when members seek out-of-network care.

That can end up being very expensive for consumers who aren’t aware that the plan’s cap on out-of-pocket costs (as required by the ACA) only applies within the plan’s provider network.

Filing Claims

If you get care out-of-network, you’re usually responsible for filing the claim paperwork with your insurance company. If you stay in-network, your doctor, hospital, lab, or other healthcare provider will generally file any necessary claims.

In plans that don’t cover out-of-network care, there usually isn’t any reason to file a claim for out-of-network care—unless it was an emergency—since your insurer won’t reimburse you for the costs.

It’s still important to keep track of what you’ve paid, however, as you may be able to deduct your medical expenses on your tax return. Talk to a tax specialist or accountant for more information.

Or, if you have an HSA, you can reimburse yourself (at the time of service, or anytime in the future) with pre-tax funds from your HSA, assuming you don’t deduct your medical expenses on your tax return (you can’t do both as that would be double-dipping).

How Your Healthcare Provider Gets Paid

Understanding how your healthcare provider gets paid can alert you to situations in which more services than necessary are being recommended, or situations in which you might need to push for more care than is being offered.

In an HMO, the healthcare provider is generally either an employee of the HMO or is paid by a method called capitation. Capitation means the healthcare provider is given a certain amount of money each month for each of the HMO members they are obligated to care for. The healthcare provider gets the same amount of money for each member, whether that member requires services that month or not.

Although capitated payment systems discourage ordering tests and treatments that aren’t necessary, the problem with capitation is that there’s not much incentive to order necessary ones, either. In fact, the most profitable practice would have lots of patients but not provide services to any of them.

Ultimately, the incentives for providing necessary care in an HMO are an honest desire to provide good patient care, a decrease in long-term costs by keeping HMO members healthy, public quality and customer-satisfaction rankings, and the threat of a malpractice suit.

In EPOs and PPOs, healthcare providers are typically paid each time they provide a service. The more patients they see a day, the more money they make.

Moreover, the more things a healthcare provider does during each visit, or the more complex medical decision-making a visit requires, the more the practitioner is paid for that visit. This type of payment arrangement is known as fee-for-service.

The downside of a fee-for-service payment arrangement is that it provides a financial incentive for the healthcare provider to provide more care than may be necessary. The more follow-up visits you require, the more money the healthcare provider makes.

Also, since the healthcare provider is paid more for complex visits, it’s no surprise that patients have lots of blood tests, X-rays, and a long list of chronic problems.

Medicare and Medicaid

Roughly 37.5% of the U.S. population is enrolled in either Medicaid or Medicare. These are government-run health plans. Traditionally, the government (federal for Medicare; federal and state for Medicaid) simply paid healthcare providers directly when enrollees received care. 

However, in recent decades, there has been a switch toward managed care in Medicaid and Medicare. More than two-thirds of all Medicaid beneficiaries receive most or all of their care from contracted managed care organizations. (The state contracts with one or more health plans; enrollees might thus receive a Blue Cross Blue Shield ID card, as opposed to an ID card from the state Medicaid program.)

As of 2021, about 51% of Medicare beneficiaries were in managed care plans.

Which Plan Is Best?

The best plan for you depends on how comfortable you are with restrictions and how much you’re willing to pay. The more a health plan limits your freedom of choice, for instance, by not paying for out-of-network care or by requiring you to have a referral from your healthcare provider before you see a specialist, the less it will generally cost in premiums and cost-sharing.

The more freedom of choice the plan permits, the more you’re likely to pay for that freedom. Your task is to find the balance you’re most comfortable with.

• If you want to keep your costs low and don’t mind the restrictions of having to stay in-network and having to get permission from your PCP to see a specialist, then perhaps an HMO is for you.
• If you want to keep costs low, but it irks you to have to get a referral for a specialist, consider an EPO (keeping in mind that some EPOs do require PCPs and referrals; always check the details of the plan you’re considering).
• If you don’t mind paying more, both in monthly premiums and cost-sharing, a PPO will give you both the flexibility to go out-of-network and to see specialists without a referral. But, PPOs come with the extra work of having to get pre-authorization from the insurer for expensive services, and they tend to be the most expensive option.
• If you’re buying your own coverage (as opposed to getting it from your employer), you may not have any PPO options, as individual market plans have increasingly switched to the HMO or EPO model.

Finally, if you’re getting coverage from your employer, the scope of your plan options will generally depend on the size of your employer. Bigger employers tend to offer more plan options, whereas a small employer might just have a single plan available for employees to accept or decline.

Summary

Virtually all modern health insurance plans are managed care plans, but there is considerable variation in terms of the size of the provider network and the requirements that plans have for member utilization.

There’s no perfect health plan type. Each one is just a different balance point of benefits vs. restrictions and spending a lot vs. spending less. Understanding the difference between PPO, EPO, HMO, and POS is the first step toward deciding how to pick the health insurance plan that will work best for you and your family.