Understanding health insurance and the HMO

by Lesley Politi on June 15, 2009

About 75% of the people I speak with that need Health Insurance don’t know the exact different between an HMO plan and a PPO plan. Below the article explains the HMO plan, how it work and where it came from.

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As the U.S. continues to struggle with the rising cost of health insurance, numerous surveys report that most Americans, both the insured and the uninsured, do not clearly understand the kinds of health plans being offered.

Each year employees are offered health plan choices and asked to make a selection as to what kind of coverage they want. Often, the larger the employer  the more choices to make. But the terminology is confusing and the meanings of terms can change leaving the insurance consumer struggling with understanding how a health insurance plan works.

Let’s begin to discuss the kinds of health plans that are being offered in the health insurance market. The kind of plan selected will govern not only the cost but will also define the benefits that will be available to the insured under the selected plan.

Health insurance has a language and terminology all its own. Each of the familiar, but not entirely understood, acronyms has a distinct meaning. We will begin with the most familiar, the HMO.

Before the managed care system took hold in this country, health insurance plans were primarily major medical indemnity plans. Often called 80/20 plans, the insured paid 20% and the insurance company paid 80%. In 1949, Blue Cross maintained 81 hospital plans and Blue Shield had 44 medical plans. Together the Blue Cross Blue Shield organizations covered about 24 million Americans.

The HMO Act of 1973 was signed into law by President Richard Nixon and a whole new vocabulary was born.

HMO  means Health Maintenance Organization. The HMO has changed over the years  As originally conceived is was intended to be a pre-paid insurance plan that offered services at a fixed monthly fee. The monthly charge remained the same no matter what services the insured used.

This was a drastic change from the Blue Shield model which was a “fee for service” plan. An insured would go to the doctor and the doctor would charge a fee for that specific service. Blue Shield would pay 80% of the charge and the insured would pay 20%

One of the earliest HMO models was first seen in 1938 when Henry Kaiser established a prepaid clinic and hospital for the workers at the Grand Coulee Dam project in Washington. By 1942 Kaiser extended the project to include workers at the Kaiser managed shipyards and Kaiser steel mill.

Not to be left behind, Blue Shield adopted its own prepaid plan with participating physicians in 1939.

By 1945 the Permanente Health Plan which had serviced Kaiser employees was opened to public participation in California. Eventually Kaiser Permanente became one of the most famous HMOs to use a facility based design. Medical services, including doctors and laboratories were housed in a single facility. Doctors were paid a salary and patients visited their doctors, had their tests performed and filled their prescriptions all at the one facility.

Today an HMO generally refers to a type of insurance plan that strictly controls the insured’s choice of doctor and hospital. Members of HMO’s must see a primary care physician (PCP)  who is expected to control and direct the care of that insured.

If the insured needs to see a specialist, the PCP will refer the patient to a specific provider. The insurance company that sells the HMO plan also maintains a network of providers who will service patients in the HMO plan. If an insured goes outside the HMO network and sees a provider who is not part of the network, the insurance company generally will not pay for any of the services received.

There are still many insurance companies that sell strict HMO plans. In 2006, it was reported that 67 million members were enrolled in HMO plans. However, by then over 108 million had switched to a PPO.

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In California, HMO plans are more expensive for Individuals then PPO plans in monthly premiums, but less when you use the services such as office visits, lab work, xrays etc. When getting an HMO with a group plan is usually less then most group PPO plans offered. Most people do think that HMO plans are always less expensive then PPO plans, which is how it used to be. 

Source: www.examiner.com

Questions Please Call Politi Insurance Agents & Brokers

818-709-8442

www.health-insurancecalifornia.com

 

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