How do HMO and Private Insurance Plans Compare?

Private insurance and HMO plans compare in a variety of ways. They both provide health insurance coverage to individuals in order to pay for medical expenses. They differ in the way they pay benefits and the conditions under which these benefits are paid.  A private insurance plan is typically referred to as a medical expense plan while HMO plans are also called fee-for-service plans. HMO premium costs tend to be far below those of private insurance plans, but the benefits and flexibility of use arguably is greater with a medical expense policy.

Private Insurance Medical Expense Plans

Private insurance medical expense plans are the most expensive type of health insurance coverage that is available. These plans are offered by private insurance companies and provide a wide range of benefits for their policyholders. There are different types of medical expense plans:

  • Basic Medical Expense plan, which include basic hospital and basic surgical plans;
  • Major Medical Expense plan;
  • Supplementary Medical Expense plan; and,
  • Comprehensive Medical Expense plan.
  • Deductibles as First Dollar Expense

Medical expense plans have certain features unique to this type of health insurance coverage. This includes deductibles, which are termed “first dollar” expenses, since a deductible represents the first dollar paid by the insured before benefits are payable. The higher the deductible that the insured takes, the lower the premium cost.

Cost Sharing With Coinsurance

In addition, the insured will share in the cost of care or the medical expense incurred through the use of coinsurance requirements. For different types of medical procedures or expenses, the insurance company will pay a portion of the cost, say 80 percent and the insured will pay the remaining 20 percent. The cost share amount varies, depending on the procedure.

Health Maintenance Organizations

Medical expense plans offered by private insurance companies do not have the same restrictions to access to care like HMOs do. HMOs, which were created under the Health Maintenance Organization Act of 1973, were designed to manage health care by containing costs. HMOs work under a panel system in which the providers of medical services are under. An open panel HMO is one in which the providers work with both the subscribers to the HMO and other patients, while providers in a closed panel HMO are only allowed to work with the HMO subscribers.

HMOs tend to operate their own clinics and hospitals, which is done under a staff model, closed panel HMO. HMOs may also contract with outside independent medical groups and other providers in order to deliver services to its subscribers. The HMOs pay a negotiated or fixed monthly fee to the provider for their services on a per capita or subscriber basis. HMOs discourage subscribers from going outside the HMO provider network for services and will not pay for the services rendered, unless it was for emergency services. Medical expense plans will pay for outside provider services.

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