Appendix D. Types of Network-Based Health Plans
As the use of managed care techniques has proliferated, several distinctive network-based models have emerged to address the needs of various sectors of the health care marketplace. The principal types of programs, as discussed below, range from more restrictive to less restrictive approaches.
A health maintenance organization (HMO) is a coordinated delivery system that combines within the same organization responsibility for financing and delivering services. In exchange for a monthly subscriber fee (premium), enrollees gain access to a comprehensive network of physicians, hospitals, and other health care providers and facilities. Under early versions of the HMO model, physicians and other health care providers were employed by the organization that also owned and operated many of the health care facilities where members received treatment. Today, however, there are three basic types of HMOs:
- A staff model HMO in which physicians and other health care professionals are salaried employees of the organization.
- A group model HMO in which the insuring organization contracts with a group of physicians on a per capita basis and pays the group a monthly, per enrollee fee in return for the provision of open-ended physician services to members of the enrolled population.
- A network model HMO in which the organization contracts with several different medical groups to furnish physician services on either a FFS or capitated basis.
Each HMO subscriber (member) is asked to choose a primary care physician (PCP). In addition to providing basic preventive and primary care services to the patient, the PCP acts as a gatekeeper for specialty services. Patients needing specialty services must be referred by their PCP before visiting a medical specialist. In addition, nonemergency hospital admissions are subject to preauthorization by the PCP. Typically, HMOs do not pay for services rendered by health professionals or facilities that are outside the plan network unless such visits are preauthorized, except in emergency situations as defined in the plan.
Prior to 1980, staff and group HMO models predominated. Most were nonprofit organizations operating clinics and other health care facilities. As the managed care concept matured during the 1980s and 1990s, however, the focus shifted toward network model HMOs and away from nonprofit to proprietary organizations. The percentage of HMO enrollees participating in network-based plans grew from 19 percent in 1980 to 58 percent in 1990. Most network HMOs operate for-profit plans and depend primarily on contracted, rather than salaried, physicians and other health care providers.endnote[i] Approximately eight million Americans (about 4 percent of the U.S. population) were receiving their health services through HMOs in 1980. By 1993, 43 million participants in employer-based health plans were enrolled in an HMO.endnote[ii]
An independent practice association (IPA) is a legal entity that contracts with a group of physicians to provide services to HMO members. The contract usually is nonexclusive and, therefore, the IPA is free to sign contracts with multiple HMOs. Quite frequently, physicians who participate in IPAs also serve FFS patients not affiliated with any managed care plan. Some analysts consider an IPA to be a type of HMO, rather than a freestanding network health plan.
Instead of contracting with various insurers or third party administrators, health providers may contract with a preferred provider organization (PPO). Unlike an HMO, a PPO does not require its members to make modest copayments every time a service is delivered. Instead, PPO members are required to meet a deductible before insurance payments kick in, with a specified share of the cost of any subsequent services paid for by the insurer. If, for example, the PPO plan requires a 20 percent copayment with a $1,000 annual deductible, the member has to spend $1,000 out of pocket on covered services before insurance payments begin and make a 20 percent copayment for all services received thereafter during a plan year. Because the member assumes a substantial portion of the “first dollar” costs of services and a set portion of costs thereafter, PPO plans generally are less expensive than HMO plans.
A point-of-service (POS) plan blends features of the approaches discussed above. POS plan members are not obligated to choose the system to be used until the point of service delivery. As the plan participant’s choices move further away from a managed care approach, his or her out-of-pocket costs increase. For example, using an out-of-network provider without a PCP referral usually results in higher participant cost share. This model has gained a degree of popularity in the commercial health sector because it offers enrollees greater flexibility and freedom of choice than a standard HMO plan.
Finally, many traditional, indemnity health insurance plans now incorporate managed care features such as prior authorization of nonemergency hospital admissions and utilization reviews. Such plans are often referred to as managed indemnity plans.