Choosing a Health Insurance Plan

Written by Nickel - 10 Comments

Alright, I’ve let this slide far too long… It’s time to choose our health insurance plan. And when I say that it’s time, I really mean it… The paperwork is due tomorrow. My new employer offers three options when it comes to health insurance: (1) a traditional indemnity plan, (2) a Preferred Provider Organization (PPO) plan, and (3) a Health Maintenance Organization (HMO) plan. We’ve already ruled out the indemnity plan, as the premiums are high, and the coverage is overkill. So that leaves us with the PPO and HMO options. While they’re both administered through Blue Cross/Blue Shield, there are a number of differences. In very general terms, the PPO is more flexible than the HMO, but it’s also more expensive. Here’s a more detailed rundown of the key differences:

Monthly Premiums

The PPO is $50 more per month (for a family) than the HMO.

Advantage: HMO.

Copayments

The basic copayment for an office visit under the PPO is $20 vs. $15 for the HMO.

Advantage: HMO.

Deductibles

The PPO is kind of complex in this regard. There’s a basic $300 deductible per person ($900 for the family overall) for in-network, in-state care. If you’re travelling out-of-state, but visit an in-network doctor, a separate $300/$900 deductible applies. After that, we’d pay 10% of medical costs in-state and 20% out-of-state but in-network. Finally, if you go out-of-network, there’s a $400/$1200 annual deductible. On top of this, we’d be responsible for 40% of the usual, customary, and reasonable (UCR) charges, plus we’d be subject to “balance billing” (i.e., we’d have to pay the amount above the UCR costs, which is normally written off by in-network doctors). The HMO covers 100% of everything beyond the initial $15 copay (i.e., there’s no deductible, but see “Flexibility,” below).

Advantage: HMO.

Flexibility

The HMO requires us to name a primary care physician (PCP) for each person in our family, and all car has to be coordinated through the PCR (e.g., you need a referral to see a specialist). Also, the HMO network is completely in-state. Thus, if we’re travelling and need to see a doctor, we’re S.O.L. That being said, we’d still be covered for life-threatening emergencies at the in-network level no matter where we are. On the other hand, the PPO doesn’t require referrals to see specialists, and they have an out-of-state network (although it’s more restrictive).

Advantage: PPO.

Pharmaceuticals

Pretty much the same coverage between the two… $10 copay for generic drugs, $25 copay for most others. Both plans maintain a formulary/preferred list, and coverage for certain drugs not on this list is not as good. But they both claim that their lists only exclude redundant drugs (i.e., those that do the same thing as something already on the list). The only difference is that the prescriptions have to be written by in-network doctors, and that’s impossible if you’re out-of-state on the HMO (unless it’s a life-threatening emergency).

Advantage: PPO (by a hair, although this really ties back to flexibility).

Maximum Limits

The HMO has a maximum lifetime limit of $2,000,000. I couldn’t find an equivalent number in the PPO literature, but I’m not particularly concerned about the HMO limit. I know, I know… Famous last words, but… We can always switch plans from one year to the next, so we can easily circumvent this limit (heaven forbid we ever need to) so long as we don’t rack up millions in medical bills in a single year.

Advantage: Non-issue.

‘Intangibles’

We live in a relatively small town, and are therefore concerned about the availability of specialists, especially for our kids. About an hour from us there are several major research hospitals, each of which includes a dedicated children’s hospital. As it turns out, these are all covered by both the PPO and the HMO.

Advantage: Tie.

While there are a number of other relatively minor differences, they’re really not worth mentioning. So… Just tallying up the numbers, the HMO comes out way ahead. Then again, it’s probably not fair to weigh everything here equally. For example, the complete lack of ‘regular’ coverage when we’re out-of-state is a bummer for the HMO. Then again, we’d save $600 on the premiums alone, plus additional money on copays and deductibles, if we went with the HMO, so we could easily self-insure against a few routine medical visits on the road. And if anything especially nasty cropped up, we’d still be covered.

Right now we’re leaning toward the HMO. The good thing is that open enrollment is only two months away, so we can easily change our mind with an effective date of January 1, 2007. Given the above information, what would you do?

Published on August 14th, 2006 - 10 Comments
Filed under: Insurance
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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Comments (scroll down to add your own):

  1. In my experience, HMO’s achilles heal is the requirement for a PCP. You left out one big varible: The amount of time lost waiting to see your PCP so he/she can refer you to the right doctor.

    I can’t tell you how many times I’ve had to wait 30+ minutes at a doctor’s office. Imagine having to wait 30+ minutes for your PCP then have to do it all over again once you get the referral you need at another doctor’s office.

    Health insurance has gotten so ridiculous. I pay $400/month for PPO coverage with deductables. The REAL cost after factoring deductables and copays is about $600/month!

    If you have kids, I can guarantee you will need specialists at some point!

    Comment by Rich Slick — Aug 14th 2006 @ 10:15 am

  2. I work for a health insurance company and, as such, we get to try some of the newer products a little earlier than some other companies. For the past two years, we’ve had a High Deductible plan and, for us, that has worked out quite well.

    Our annual deductible is $6000 (which we never come close to hitting), and our family premium is only $20 a month. Couple that with my employer kicking an extra $1500 a year into our HSA and then my ability to max that out pretax and it really is a nice little plan for a youngish couple in good health.

    We had a scare last year with our (then) 1 year old daughter that required an ER trip and some followup EEG’s and EKG’s and I figured out that we still came out ahead with the plan we had.

    And, this year, they’ve improved the plan to where it now covers preventive medicine 100% before the deductible.

    To answer the question posed, I would go with the HMO our of your options. $600/year is worth sitting in a couple doctor’s offices to me.

    Comment by Norm — Aug 14th 2006 @ 12:55 pm

  3. For a family, the HMO plan will always appear to be a better plan. Why; because the insurance companies can make a deal with the physicians in the network to pay a certain amount for service vs those physicians out-of-network.

    The problem is your current doctors (OB/GYN, PCP, Ped) may not be covered in the HMO. Remember, many people forget that an OB/GYN physician is a specialist and they are not able to go to that physician during a pregnancy due to out-of-network status.

    We currently have PPO’s mostly because we feel the ability to choose is more important than the financial aspect of it; but we are fairly healthy people who do not need to see a doctor often!

    However, I would decide based on 2 questions? 1: Are your current physician in-network with the HMO? 2: Is your family overall healthy? If the answers to both are yes, I would go with the HMO.

    -Medicated

    Comment by Medicated Money — Aug 14th 2006 @ 7:14 pm

  4. As someone who has dealt with MEDICAL COSTS (my wife was diagnosed with stage 4 cancer at age 22, now 25), this is one area where money should be no object. It is insurance, so risk is a major factor, but this is something you should strech to afford the best you can. CT and MRI scans can easily run you $5-10K, and you always want the best doctors not the one the crappy BS/BC picked because the guy picking was friends with the doctor in elem. school.

    Comment by Rob — Aug 15th 2006 @ 7:58 am

  5. Wow. Your post just reminded me of something really important. I need to check the “out of state” coverage on my medical plan. (I’ve got the HMO at work.) If it’s as bad as yours, then I’m going to be in serious trouble when I move to Indiana. Because even though Highland IN is a seperate state from Chicago IL the same way Windsor is a seperate country from Detroit…um…that does mean that, literally speaking, any doctor whose office I can get to from home in a hurry is going to be “out of state”.

    Comment by Matt — Aug 15th 2006 @ 8:31 am

  6. I had the BC/BS HMO plan for the last 3 years and just this year switched to the PPO. I am much happier with the PPO. Waiting for referrals often led to not even bother with going to the doctor at all. I live in the city (Boston) – and getting in to see my PCP would take days. Now I can just call any doctor and go in for a visit.
    Excellent point made by Rob – you want the best doctor for the job (PPO) not who the HMO says you can use.

    Comment by Cuddy — Aug 16th 2006 @ 8:54 am

  7. I too work for a managed care company.

    You didn’t state which BCBS your plans are from (they’re like franchises and differ a bit in overall quality), but overall good company. I’m summarizing a few things you need to check:
    -you didn’t mention pharmacy. This is pretty important too. see what the differences are in co-pays, deductibles, etc. and compare against what you used up last year/anticipate this year.
    -check your current physicians that you really like to see if covered in either plan.
    -Confirm that you need to see a PCP every time if have HMO. Unlike what people think, HMOs have evolved and dont always need a gatekeeper.

    Right now from your comments, HMO is the winner. good luck.

    Comment by gmanbox — Aug 16th 2006 @ 10:50 am

  8. PPO always. We never consider the HMO, we prefer flexibility of seeing the best doctors, instead of just what’s in network. Granted, I have had a lot of strange accidents so I use my medical more than most.

    Comment by J — Nov 30th 2006 @ 6:07 pm

  9. I have bc/bs and just realized that after my deductible of $2500, I’m only covered at 80% thereafter. Additionally, I found out that it does not cover wellness/preventative treatment. I think it’s time to find better coverage.

    Comment by bill — Jun 1st 2007 @ 4:39 pm

  10. employee in Kentucky has reached lifetime maximum benefit. What can they do?

    Comment by Ashley Stokes — Apr 8th 2008 @ 3:00 pm

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