In The World of Managed Health Care, How Do PPO, HMO, and POS Plans Work?

May 22, 2017, by Liza Martin

In the last two decades, managed health care plans have become the most common form of health care coverage offered in the United States, growing from 27% of the health insurance market in 1988 to about 90% today. The reason for this dramatic change can be attributed to the escalating costs of health care. In an effort to gain some control over health care costs, employers, who foot the bill for the majority of health care in the U.S., more often than not opt for managed health care plans since these plans typically offer significant savings over indemnity plans.

There are three main categories of managed health care plans: Health Maintenance Organization (HMO); Preferred Provider Organization (PPO); and Point of Service (POS). Of the three, HMOs and PPOs are the most common. Regardless, whether an HMO, PPO, or POS, all managed health care plans are designed to manage costs, and the use and quality of health care.

Managed care plans operate from the premise that health care costs can be better controlled by controlling access to health treatments and services. While this may be true and beneficial to the companies offering these plans, from a patient's perspective, it can be difficult to get approval for health care that goes beyond basic preventative care.

One of the first types of managed health care plans was the Health Maintenance Organization (HMO). Unlike an indemnity plan, where participants are free to seek medical attention whenever and wherever they feel necessary, HMOs are much more restrictive. Indeed, in practice, the insurance company controls every aspect of the health care of its HMO plan members. It is this lack of flexibility which represents the main trade off for the lower out-of-pocket expenses for members and lower premiums for employers.