Medical Insurance Terminology Explained: HMO/PPO, In/Out-of-Network, Deductibles & Plan Year

January 06, 2019

by Allison Hall on Jan 06 2019

Deductibles. PPO. HMO. Co-pays. Co-insurance. In-network. Out-of-network. Plan years. AHHHHH!!!!

It can be very overwhelming choosing and understanding a healthcare insurance plan, especially if you don’t happen to have a crystal ball that can tell you if it is going to be a healthy or medically complex year.

As a health care provider I have seen how different each plan is even if two families both have plans with the same insurance provider. The terms of the insurance contracts can also change at a new plan year so we cannot assume that a plan on December 31st is the same on January 1st.

Here are a few terms that are relevant to most medical insurance plans.

HMO vs PPO

HMO plans

You will likely have more restrictions on the healthcare providers that are covered by your plan, and you will need a referral to see a specialist (e.g.neurologist, physical therapist, etc.). If you do not get the referral beforehand, your insurance company will likely not pay for any services provided during that visit with the specialist.

PPO plans

You typically have the freedom to access healthcare professionals without
going through your primary physician as long as the healthcare provider accepts
your insurance plan (in-network vs out-of-network terms will apply for payment).

New for 2019: While PPO plans did not typically need approval before seeing a specialist, some PPO plans are starting to require pre-authorization before seeing a specialist. This is very important because if you go to a specialist WITHOUT the referral, the insurance company may not pay for the services provided.

In-network vs Out-of-network services

If a medical provider is “in-network” then they have contracted pay rates with your
insurance company for the services that they provide. Following, your medical
provider may be able to give you an idea of how much your medical services will
cost.

If a medical provider is “out-of-network” then they do not have a contract with your insurance company. You can ask your medical insurance company what your “out-of-network” coverage is. Sometimes, the insurance company will still pay for a percentage of out-of-network services, although at a lower rate than they would pay for in-network services. I have seen families opt to see an out-of-network provider because the facility is closer than in-network facilities or because of they feel more confident in the expertise of the out-of-network provider.

Co-payment vs Co-insurance

Co-payment (i.e co-pay) is a set amount that you will pay for a healthcare service (e.g. seeing the doctor or a therapist). This is often around $20-40 per office visit for a primary care doctor but might be more for specialists. You may have a copay before you have finished paying toward your deductible. You may also have a copay after you pay your deductible, and when you owe co-insurance. 

Co-insurance is a set percentage that you will pay towards your medical services after you meet your deductible. This is usually around 20% for in-network services and higher (40-100%) for out-of-network services. As an example, if your medical service cost $100, and you have 20% co-insurance, then you will pay $20 and your insurance company will pay $80.

There are some instances when you will pay for a co-payment and co-insurance. For example, if you saw a specialist and they performed a diagnostic test you might be billed the co-pay for the visit and co-insurance for the test.

What is a Deductible?

A deductible is the amount that you have to pay towards medical services before your insurance plan will start paying for your covered services at a higher rate (i.e. co-insurance rate). Usually the lower the deductible, the more you (and/or your employer) will pay each month for coverage (i.e. your monthly premium).

Here’s where the crystal ball would be helpful because if you knew that you were going to meet your deductible quickly (e.g. having a baby in February) then that might influence how much you are willing to pay each month (i.e a higher monthly premium) knowing that your medical services would be covered for the rest of your plan year.

Let’s consider an unfortunate scenario where your child breaks her arm and needs $1,500 worth of medical treatment. Here are some different examples of how this looks:

Situation 1: Your deductible is $500. You will need to pay the $500 and then the remaining $1,000 of medical expenses will be at your co-insurance rate, which typically ranges from 0-30% for in-network services (i.e. you pay an additional $0-300 in this example). Your in-network medical services for the rest of the year will be covered at your co-pay or co-insurance rate.

Situation 2: Your deductible is $7,000. You will need to pay for all of the $1,500 of broken arm expenses. You will have an additional $5,500 to pay towards your deductible before your medical expenses will begin to be covered at your co-insurance rate.

What is a Plan Year?

Plan Year = The date that your insurance contract starts over along with a new deductible, new visit counts for therapy and potentially new terms of your contract. 

A plan year is not linked with the date that you started with your insurance plan. Plan years usually re-start January 1 or July 1.

Let's take an example where you got a new job and hence a new insurance plan in March. Your new insurance contract plan year starts January 1st. Therefore, your insurance plan year will re-start in January (not March).

This is general information and medical insurance is constantly changing. Keep asking questions of your insurance providers and your healthcare professionals, especially during the transition into a new plan year.

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About the author:

Dr. Allison Hall, PT, MPT, DPT is a pediatric pediatric physical therapist and the founder of bloom (mykidblooms.com), an eLearning platform for parents/caregivers to receive information from pediatric experts. Dr. Hall is determined to improve the access of parents/caregivers to the knowledge of pediatric experts regardless of barriers such as remote living, disabilities and/or inadequate medical insurance. She is part of tight knit party of five plus two rescue dogs. She finds joy in walking in nature, traveling almost anywhere, learning new things, pondering life intensely, caring for others deeply and doing anything that makes for a good laugh with family and friends.


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