What is PPO and How to Choose the Right PPO Plan?

What is PPO insurance? I have been getting this question quite a lot lately. PPO is an abbreviation for Preferred Provider Organization and it is a kind of managed health care insurance plan. PPO is formed by bringing together health care providers like doctors, nurses, hospitals, medical labs, pharmacies, X-Ray centres, etc under an agreement. These service providers offer their services to the insured at a lower cost. In return they get a steady stream of customers (the insured).

But What is PPO?

Imagine PPO as a company which sits between whoever is insuring your (your employer or insurance company) and the health care providers. The following diagram explains what is PPO and how it works.

There are two ways you can buy a PPO insurance. If your employer offers health benefits then the employers buys the insurance. Big employers negotiate terms directly with PPO. Small employers and individuals cannot negotiate terms directly with a PPO. So they buy insurance from an insurance company. The company in turn negotiates terms with the PPO. And vola! You the insured have access to the PPO network at a much cheaper cost. In return you (or your employer) pay a monthly premium.

Benefits of PPO

The main benefit of PPO is the reduced cost of health care. Unlike indemnity insurance plans PPO insurance is hassle free. You don’t have to pay for your medical care upfront and file claims.

PPO works on a self referral model. This means unlike HMO insurance you don’t have to get referral from a primary care physician for visiting a specialist. It allows you to see a doctor or specialist of your choice. In this way PPO is cheaper than HMO because you don’t have the incur the co-payment expense of visiting the PCP.

Disadvantages of PPO

Usually the premium for PPO plans is higher than HMO plans. One way of reducing the PPO premium is to increase the annual deductible. But this increases the out of pocket expenses (co-payments and co-insurance). The buyer has to find a balance between a higher premium and higher out of pocket expenses which can be difficult.

Things to Keep in Mind When Buying PPO Insurance

The things you should keep in mind when buying PPO insurance:

Balance Monthly Premium with Annual Deductible

With PPO insurance you can customize your annual deductible. The higher the deductible the lower is the monthly premium. For example the plan with annual deductible of $3000 may cost you $4044 per year while the plan with annual deductible with $2000 will cost you $5616 per year. At first glance it seems that first plan is better under all possibilities. But there are more complications. Read on.

Know the Co-payment Expenses

Find out how much it will cost you in co-payment for visiting the doctor and specialist. Cheaper plans have higher co-payment cost for X-ray and MRI scan. For the first plan in the example above the co-payment for MRI scan is $2,550. For the second plan it is $2000.

You should also know the co-payment expense for prescription drugs. Prescription drugs fall into two categories – generic drugs and brand drugs. For some PPO plans the co-payment for brand drugs may be higher.

Other major co-payment expense the insured may incur are:

• Hospital services like emergency room, hospital stay, and labour & delivery
• Emergencies like broken leg, car accidents, heart attack etc.
• Major illnesses like diabetes and cancer treatment.

Know Your Co-insurance

Co-insurance can be a big expense in case of a major medical care. Co-insurance can be as high as 35% or as low as 0%. For example one insurance plan with an annual premium of $3500 has co-insurance of 35% while another plan with an annual premium of $4000 has no (0%) co-insurance.

Is Preventive Care Included?

Preventive care is a great way to take care of your health. Most insurance plans encourage this practice. You should make sure the PPO plan includes an annual complete physical check-up, obstetrician and gynecologist check-up and check-up for your baby if you have one.

Other Fine Print

Lifetime maximum is another fine print item one should keep in mind. With Obamacare lifetime maximum will become history. You should know HSA eligibility and application fee.