Health Maintenance Organizations and Preferred Provider Organizations

A third model, the network model, is similar to the group model but the HMO contracts with various groups of physicians based on the specialty that a particular group of doctors practices. Enrollees then obtain their service from a network of providers based on their specialized needs. Under the fourth model, the staff arrangement, doctors are actually employed by the managed care plan sponsor. The HMO owns the facility and pays salaries to the doctors on its staff. This type of arrangement allows the greatest control over costs but also entails the highest start-up costs.

For small businesses in the market for a health care plan, HMOs offer relatively low costs, broad coverage, and little administrative work. Many HMOs began establishing plans for smaller companies by the mid-1990s, although some of the larger HMOs still did not provide coverage for individuals. Experts recommend that small business owners check the financial security of an HMO before signing a contract, since many managed care providers went bankrupt in the early 1990s. Although employees have a reduced ability to choose their own doctors and limited out-of-area coverage with an HMO, they benefit from low out-of-pocket costs, comprehensive services, preventative care, and no claim forms. In addition, there is no waiting period for coverage of preexisting conditions, and no maximum lifetime limits on benefits. Many HMOs also provide other services, like dental care and eye exams.

PPOs

A PPO is a variation of the basic HMO that combines features of traditional insurance with those of managed care. With a PPO, the plan sponsor negotiates discounts with participating doctors and hospitals, then pays them on a fee-for-service basis rather than prepaying. Patients are usually permitted to choose from a fairly extensive list of doctors and hospitals. The patient is required to pay a set amount per visit, and the insurer pays the rest. The amount of the co-payment depends on the type of plan—those with higher premiums usually feature lower out-of-pocket costs.

The major difference between PPOs and HMOs is that PPO enrollees retain the option of seeking care outside of the network with a doctor or hospital of their choice. They are usually charged a penalty for doing so, however, as the percentage of costs paid by the PPO is reduced. Doctors and hospitals are drawn to PPOs because they provide prompt payment for services as well as access to a large client base. There are still restrictions on patients that are intended to control the frequency and cost of health care services, but not as many as with a typical HMO. PPOs are a popular choice for sole proprietors or owners of very small companies, since they require employees to pay a larger percentage of their own health care costs. Most insurance agents and brokers can provide information on the various PPO plans available to small businesses.

POSs

A point of service plan (POS) is a sort of hybrid health insurance model that combines features of HMOs and PPOs. Like an HMO or PPO, the patient only pays a co-payment or low co-insurance for contracted services within a network of preferred providers for what is termed in-network care. However, like traditional fee-for-service insurance, enrollees have the flexibility to seek out-of-network care under the terms of traditional indemnity plans with a deductible and a percentage coinsurance charge.

THE DEBATE OVER MANAGED CARE

Health care reform was a major topic of debate during the 2000 elections. Political candidates were reacting to growing public outrage over cost increases and increasing restrictions imposed by managed care health insurance plans, especially HMOs. As HMOs increased in popularity during the 1990s, many people came to believe that, as for-profit companies, they placed a greater emphasis on making money than on providing needed care. The media was full of stories about HMOs denying medically necessary services to patients, ostensibly in order to control costs.

In response, the U.S. Congress began considering several major pieces of legislation that would regulate managed care providers and affect the way health insurance companies operate. As of 2006 they are still considering and debating the subject. Meanwhile, many states have passed rules and regulations that provide protections of the sort envisioned in Patients' Bill of Rights. The laws vary by state but include such mandates as: a ban on gag clauses, which prevent physicians from telling patients about all possible treatment options; a ban on pre-authorization requirements for emergency room care; and the creation of independent grievance panels to settle disputes between patients and HMOs.

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