Health Plan Definitions

Despite the number of different health plan names, there are actually only four basic types of health plans: Indemnity, Preferred Provider Organization (PPO), Health Maintenance Organization (HMO) and Exclusive Provider Organization/Point of Service (EPO/POS).

Indemnity Plans

Indemnity plans are the traditional fee-for-service type of health plan. Indemnity plans offer patients total freedom in selecting physicians and hospitals.

However, since indemnity plans are not managed care plans with negotiated reduced fees and the cost of care is billed at full charge, patients pay more out-of-pocket cost than they would with one of the
managed care plans.

Preferred Provider Organization (PPO) Plans

PPO plans are managed care plans based upon an organized network of independent physicians and hospitals who provide care at reduced or discounted fee-for-service. Patients who select participating physicians and hospitals are rewarded with reduced out-of-pocket costs and lower annual premiums.

Health Maintenance Organization (HMO) Plans

HMO plans are also managed care plans based upon an organized network of health care providers. However, patients have less freedom of choice since they must select a primary care physician participating in the HMO plan.

The primary care physician acts as the "gatekeeper," managing all medical care for the patient. Care from specialty physicians is available within the HMO network, but only upon referral from the primary care physician. Patients pay minimal costs for office visits and medications, and pay the least in annual premiums.

Exclusive Provider Organization (EPO) / Point of Service Plans (POS)

EPO/POS plans are managed care plans that incorporate features of both HMO and PPO plans. When patients choose to receive care from providers that are part of the EPO plan network of independent physicians and hospitals, the care is reimbursed at negotiated contract rates which significantly reduces out-of-pocket costs.

However, patients may also choose to receive care from providers that
are not part of the EPO plan network. In this case, patients pay traditional fee-for-service rates which significantly increase out-of-pocket costs.

The unique feature of EPO plans is the opportunity to choose physicians and hospitals both inside and outside of the EPO plan network, even though plan benefits are greatly reduced when non-network providers are chosen.