Preferred Provider Organizations: What Are They?
The cost of health insurance is a major expense for most people. People can obtain health insurance through public governmental programs, such as Medicare and Medicaid, or through private insurers. To be eligible for a governmental program, one must meet specific criteria. Typically, there is a minimal or even no cost associated with this type of health insurance. Alternatively, individuals can opt for a private plan and pay a monthly fee, also known as a premium, to a private insurer. The insurer will then cover medical expenses for the individual. Participation in a private plan can be done individually or through one’s employer. Once enrolled in a health insurance program, an individual becomes the insured party.
PPOs and managed care
It is known as managed care. Insurers, both public and private, control healthcare costs by contracting with a network of healthcare professionals, including doctors, hospitals, clinics, pharmacies, and labs. Managed care comes in many forms, but the two most common are preferred provider organizations (PPOs) and health maintenance organizations (HMOs).
In a PPO, the insurer has an agreement with certain healthcare providers, referred to as preferred providers or in-network providers. Any healthcare provider without a contract is considered out-of-network. By using in-network providers, the insured can save on healthcare expenses. While some PPO plans do allow the use of out-of-network providers, it may result in higher costs. Additionally, some plans require the insured to choose a primary care physician (PCP), also known as a gatekeeper, to manage all their healthcare needs. In these plans, the PCP must give approval for any medical care beyond basic routine services.
What is PPO insurance and how does it work?
In order to reduce their overall health care costs, insureds need to understand the costs and reimbursement rules associated with PPO health insurance:
In a PPO, a person pays a set amount of money for coverage. The Smiths are a family of four that has PPO insurance. A portion of Mrs. Smith’s monthly premium is paid by her employer, and the remainder is deducted from her paycheck. With the employer contribution, Mrs. Smith is able to cover the entire family. Without the employer contribution, the Smiths would have to pay the entire premium themselves. The insured is Mrs. Smith, and the dependents are her family members.
All of the Smiths’ primary care physicians (PCPs) are contracted members of the PPO network, so they are considered in-network providers. It is common for the Smiths to visit their primary care physician (PCP) in-network on a regular basis. This fee is known as a copay (copay for short). Since children must visit their PCP for checkups and vaccinations regularly, the low cost of routine visits is helpful. A certain number of PPOs offer insured members the opportunity to visit their PCP for free.
The Smiths are responsible for the complete cost of any medical services that go beyond regular check-ups for illnesses, like a cough or cold, or injuries, such as a cut or broken bone. This total cost is $500 per person, with a maximum of $2,000 for the entire family before additional expenses are covered by their PPO. This amount is known as the deductible and is entirely paid by the insured. Any fees from providers, like hospitals, labs, and x-rays count towards this deductible.
Once the Smiths have paid a total of $2,000 in non-routine medical expenses, they will have “met the deductible,” and their PPO will then cover some or all of the remaining fees. Smiths pays 20% of any additional fees and the PPO pays 80%. The percentage the insured pays is called coinsurance.
In that particular year, Mr. Smith experienced a heart attack while one of their children underwent appendicitis surgery. Due to the significant costs incurred, the Smiths were able to reach their deductible without difficulty, with $16,000 being spent on medical expenses.
Similar to most PPO plans, there is an annual out-of-pocket maximum that must be covered by the insured. The Smiths had a maximum of $10,000 for this purpose. Once they had fulfilled this amount towards their medical bills, the PPO took care of all remaining expenses at 100%, requiring no further coinsurance payments.
Whenever possible, the Smiths use in-network healthcare providers. The Smiths will pay more in deductibles, copays, and coinsurance percentages if they use healthcare providers that are not contracted with the PPO. These providers are considered out-of-network. The cost of visiting in-network providers is lower than that of using out-of-network providers.