How to Choose an HMO or PPO plan

Bizjournals.com -- The quality of a company's health insurance plan can be a key factor in retaining employees, but providing medical coverage is a significant expense - especially for companies with 50 or fewer employees.

A survey by America's Health Insurance Plans, an industry trade group in Washington, D.C., found small-group coverage in 2006 averaged $312 per month for single coverage and $814 per month for family coverage.

Helen Darling, president of the National Business Group on Health in Washington, D.C., said that when evaluating plan options, employers should consider the quality of care provided to its members and not just the premium prices.


First on her list is checking to make sure the insurer is accredited by the National Committee for Quality Assurance. Next would be reading through the plans' HEDIS (Health Plan Employer Data and Information Set) scores, which the NCQA accumulates to track plans on various performance measures.

"You can find out things like what percentage of their members receive a beta-blocker after suffering a heart attack," Darling said. "I'd also make sure the physicians in the plan are, with very few exceptions, board certified. And I'd want to see that the plan has a 'centers of excellence' program for certain procedures such as organ transplants and cardiovascular care."

When evaluating premiums, Darling suggested businesses ask for a breakdown of all prices to determine whether it might be cheaper to outsource certain part of the plan, such as prescription pharmacy benefits.

Among the various types of employer-sponsored health insurance plans, managed-care options dominate the landscape.

In its national survey of employee-sponsored health plans, the consulting firm Mercer Human Resource Consulting found that preferred provider organizations (PPOs) were the most popular option in 2006, at 61 percent, followed by health maintenance organizations (HMOs) at 24 percent.

Both HMOs and PPOs have contracts with networks of physicians, hospitals and other health-care networks. Members pay less for services provided "in-network," but typically have the options of paying higher "out-of-network" fees to going to providers not in the network.

HMOs are more restrictive by having members select a primary-care physician who must approve visits to specialists. PPOs typically carry slightly higher deductibles and co-payments, but no restrictions on visits to specialists - making the option generally more favorable to members.

In order to hold down premiums, managed care plans are increasingly offering customers a tie red pricing plan for pharmaceuticals. Members pay the least for generic drugs, slightly more for brand-name products in the plan's formulary of approved drugs, and the most for brand names drug not on the formulary list.

Traditional indemnity coverage, which accounted for about 50 percent of employer-sponsored plans in the early 1990s, has steadily plunged during the past decade and hit just 3 percent last year according to the Mercer survey.

The newest option is consumer-directed or consumer-driven health plans, abbreviated as Chaps, which feature high deductibles along with health savings accounts or health reimbursement accounts. With such plans, employees and employers can make a pre-tax contribution to a health savings account, which is used to pay for routine medical care. Any funds left in the account at the end of the year can be used in subsequent years. If the fund is depleted, the employee's coverage converts to a high-deductible managed-care plan.

Proponents of Chaps say they help people become better health-care consumers because their own money is involved. Critics fear people will put off necessary treatment to avoid emptying their accounts.

"They are not the right choice for every employer or every employee, but they can help both employers and employees save money," said Jessica Waltman, vice president of policy and state affairs for the National Association of Health Underwriters in Arlington, Va.

Waltman said some younger, childless employees decide to opt out of an employer's plan because they typically don't get sick or even go to a doctor's office.

"A consumer-directed plan is a way to entice younger workers to go into the company health insurance plan," she said, noting the feature that allows people to rollover unused funds for future health-care services.

"There really are a wide array of health plans out there, but most people (in employer-sponsored plans) end up with a PPO product because of pricing," Waltman said.

Waltman also said employees are attracted to PPOs because they allow members the ability to go to any doctor in the plan's network without a referral.

"Employers will gravitate to what employees like," she said.