Which Type of Health Insurance Is Right for Me?

Finding Health Insurance, Health

Your health insurance plan can really affect your finances, not to mention your health, and looking at all the different types to make an informed decision can be frustrating. Even after researching the various costs of having health insurance and the basic benefits, choosing among an HMO, PPO, EPO or POS plan can have you saying, “SOS!”

Knowing which of these health plans to choose ultimately boils down to individual preference. Health plans differ by their networks of health care providers and coverage limitations. Before we break down the plan types, check out this table to get an idea of the differences.

Types of health insurance plans

Plan TypeDo You Have to Stay In-Network to Receive Coverage?Do You Need a Referral for Procedures and Specialists?Best for You If:
HMO (health maintenance organization)Yes, except for emergenciesYesYou want lower out-of-pocket costs and a more guided health care experience.
PPO (preferred provider organization)No, but in-network care is less expensive.NoYou want more provider options and no required referrals.
EPO (exclusive provider organization)Yes, except for emergenciesNoYou want lower out-of-pocket costs but no required referrals.
POS (point of service) planNo, but in-network care is less expensive. You still need a referral to go out of network.YesYou want more provider options and a more guided health care experience.

Health maintenance organization

Health maintenance organizations are some of the most common plans, making up nearly 30% of all health plans, according to the Kaiser Family Foundation. An HMO uses primary care physicians (PCPs) as “gatekeepers” to prevent costly overuse of medical services; to see a specialist, patients must receive a referral from their PCP. Customers who enroll in this kind of plan are required to choose health care providers within the network of contracted physicians and hospitals. If you have an HMO and want to see a non-network doctor, the plan will not cover any of those costs, except in emergencies.

HMOs are ideal for individuals who seek lower-cost health services overall or for those who prefer the guidance of a trusted physician in all their care choices. Aside from having to choose providers in the network, there are few other limitations.

Preferred provider organization

PPO plans aim to restrain overuse of medical services while allowing patients more flexibility in their choice of physicians and specialists. There is no PCP gatekeeper for these plans, but customers are encouraged to choose providers within the network. If you choose a provider outside of the network in a PPO, you’ll pay more out of pocket, at least until you reach your plan’s deductible. The network itself consists of contracted physicians, but their contracts do not exclude them from other networks like in an HMO.

A PPO plan is ideal for those who need or want more provider options, whether it’s because the patient lives in a remote area or has to see several different specialists.

Exclusive provider organization

EPOs are essentially HMOs with a twist — they have no PCP gatekeepers. They do, however, require patients to stay inside a limited provider network.

EPOs are very restrictive in that you must remain within the network to get care. Even in the case of an emergency, some EPOs may make you pay some or all of the expenses out of pocket if you go out of the provider network. There also are copayments with EPOs, but, as with HMOs, they often are quite small.

EPOs are great for individuals who don’t like waiting for referrals to see specialists but still want to contain health costs at the time of care. Individuals who don’t mind doing a little legwork to find the right provider or specialist in a particular network will thrive with this plan.

Point of service plans

POS plans are another slightly different take on traditional HMO plans. In POS plans, you can go out of network and still get coverage, but you’ll need to get a referral from a primary care physician to do so. Some POS plans will cover all out-of-network expenses with a physician’s referral, while other plans will cover only part of out-of-network charges. As with HMOs, if you don’t get that PCP referral, the plan may cover no charges at all, except in some emergencies.

POS plans are great for people who are worried about unpredictable non-network charges. As long as you designate a primary care physician you like and trust and get a referral from him or her every time you need medical care, you’ll have a good chance of avoiding overpaying by staying in your insurance network.

Why are in-network providers more affordable?

Your costs will be lower when you go to an in-network doctor because insurance companies contract lower rates with providers who are in their networks. When you go out of network, those doctors don’t have contracted rates — thus costing your insurance company, and you, more.

Factors to consider when choosing your plan

When the time finally comes to select a health insurance company and plan, be sure to put your family’s medical needs under the microscope. You’ll want to reflect on how much and what type of treatment you’ve received in past years. Though it’s impossible to predict every medical expense, being aware of certain trends can help you make a more informed decision.

For example, POS plans and HMOs may be better if you don’t mind using specialists your primary doctor chooses for you. Another benefit of this gatekeeper system is that there’s less work on your end, and you can entrust the coordinating of visits and medical records to your doctor’s staff. If you do choose a POS plan and go out of network, be extra careful to get that referral from your doctor ahead of time to reduce costs.

On the other hand, if you want to choose all your doctors and shop around for care, you might be happier with a PPO or EPO. If this is you, choosing an EPO may also help you lower costs as long as you are able to find care providers who are all within network; this is more likely to be the case in a larger metro area. A PPO might be better if you live in a remote or rural area with limited access to doctors and care, as you may be forced to go out of network.

If you’re switching plans and want to keep your doctors, check with their office staffers to be sure they’ll accept your new plan. If not, and you’re adamant about keeping your doctors, know that your bills will be higher with your new insurer, no matter which plan you choose. In this case, a PPO plan is probably best to cover your out-of-network charges.

Understanding the pros and cons of different types of health insurance plans will help you make the best financial decision, which is not always easy. So if you’ve made it this far, give yourself a pat on the back — you’re well on your way to the smart choice for your family.

Lacie Glover is a staff writer at NerdWallet, a personal finance website. Email: lacie@nerdwallet.com. Twitter: @LacieWrites.

This post has been updated. It was originally published Oct. 16, 2013.

Claim form photo courtesy of Shutterstock.

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