SATURDAY, Nov. 19, 2005 (HealthDay News) -- Twenty-five years ago, most people in the United States had health insurance through an "indemnity" -- or fee-for-service -- plan, in which doctors get paid when they treat you.

Today, more than half of all Americans with health insurance are enrolled in some sort of "managed care" plan, such as a health maintenance organization (HMO) or preferred provider organization (PPO).

While the terms "HMO" and "PPO" may be familiar, lots of folks are at a loss to explain how one arrangement differs from the other, and with good reason.

"The differences among fee-for-service plans, HMOs and PPOs are not as clear-cut as they once were," explains the federal Agency for Healthcare Research and Quality.

Fee-for-service plans have borrowed many of the tools used by managed care plans to control costs, such as limiting access to a specified group of health care providers, the agency says. At the same time, HMOs and PPOs now give people more freedom to see the doctor of their choice, just like traditional fee-for-service plans.

The blurring of the lines between these different models of health insurance adds to many people's confusion. That's why it's important to know what type of coverage you have and how it works.

The term "managed care" describes a model of delivering and financing health care, explains the National Association of Health Underwriters. Managed care plans typically enter into contractual agreements with selected health care providers whose overall goal is to provide the highest quality care at the lowest possible cost by controlling the use of services.

Managed care comes in several varieties. Here are the basic models and their main features:

  • HMOs are the oldest form of managed care. Unlike fee-for-service plans, HMOs pay health care providers a fixed fee in advance. In exchange, the providers agree to deliver the medical services that you and your family will need. Usually, HMO members may see only those doctors and hospitals that have entered agreements with the HMO to provide care. Typically, a primary care doctor serves as the "gatekeeper," making referrals to specialists as needed.
  • PPOs are a hybrid plan combining features of the HMO and traditional, fee-for-service. PPOs enter agreements with providers to deliver care at a lower cost. Patients who use the PPO's "preferred" or "network" providers will have most of their bills covered. However, PPO members also have the option to use doctors who are not part of the plan. Services delivered by "out-of-network" providers are still covered by the PPO, but the member typically pays a greater portion of the cost. So even if your doctor is not part of the network, you won't have to switch physicians to join a PPO.
  • Point-of-service (POS) plans combine features of an HMO and a PPO. The key difference is that members have choices of providers as soon as they enroll in a plan. A POS member can stay in the managed care network and get full coverage for health care needs. Or, he or she may decide to see a provider outside the network. In that event, the amount of coverage is reduced. Members may be required to share, say, 20 percent of the cost.

More information

The Agency for Healthcare Research and Quality can tell you more about choosing and using a health plan.

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