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Problems With HMOs & PPOs

Health insurance is a necessary evil in today's society, but no matter what you choose, there are problems with it. Health maintenance organizations --- known as HMOs --- are a cheap, effective way to manage the cost of health care. They are a popular, but they have gotten a bad rap for denying medical care to their customers. Preferred provider organizations --- commonly referred to as PPOs --- give a greater amount of flexibility to customers, but they are often very expensive. The risks and rewards of these two types of insurance must be carefully weighed against each other.

  1. HMO Problem: Capitation

    • When an HMO practices capitation, it means that it gives doctors a set amount of money for each patient to cover all tests, referrals and procedures that patient may need in a calendar year. The problem is that the doctor gets to keep whatever amount of money is left over at the end of the year. If the doctor is more concerned with his bottom line, he could skimp on sending patients for tests to keep the costs low and his profits high. This is just one of the managerial problems with HMOs.

    HMO Problem: Utilization Review

    • Utilization review is probably the worst problem with HMOs. This is the power the insurance company has to determine whether a treatment prescribed by your doctor is medically necessary. A board of people who have never examined a patient can vote to deny a request for treatment. Many people do not appeal rejections, and this can lead to a patient not getting the treatment she needs. This practice saves the insurance company a lot of money because it can reject anything it feels is not a medically necessary expense.

    PPO Problem: Deductible

    • One of the problems with PPOs is that the insured has to pay a deductible before the insurance kicks in and starts to pay on the claim. A deductible is an amount of money that is paid for services before the insurance comes in to handle the rest. Deductibles can be quite high, depending on the policy. The cheaper the premium, the higher the deductible. If the insured gets struck with a sudden illness and has a cheaper PPO policy, he may have to pay quite a bit out of pocket before the PPO insurance starts covering his medical expenses.

    PPO Problem: Co-Payments

    • After the deductible is met, PPOs also require a co-payment. This is usually a percentage of the bill for the care that is received. The co-payment can be anywhere from 10 to 20 percent of the bill until the yearly out-of-pocket maximum for the policy has been reached. Out of pocket maximums can reach into the thousands of dollars. Since the co-payment is based on a percentage of the bill, it changes with every procedure and doctor encounter. Depending on the medical need, this can get very expensive for the insured.

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