The three major types of managed care plans are health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service (POS) plans.
Managed care plans generally provide comprehensive health services to their members, and offer financial incentives for patients to use the providers who belong to the plan. In managed care plans, instead of paying separately for each service that is received, coverage is paid for in advance. This is called prepaid care.
For example, a patient may decide to join a local HMO and pay a monthly or quarterly premium. That premium is the same whether the patient uses the plan’s services or not. The plan may charge a copayment for certain services—for example, $10 for an office visit, or $5 for every prescription. So, if a patient joins this HMO, there may be few out-of-pocket expenses for medical care—as long as doctors or hospitals that participate in or are part of the HMO are used. The patient share may be only the small copayments, and generally there will be no deductibles or coinsurance.
If a patient belongs to an HMO, then typically medical care must be received through the plan. Generally, the patient will select a primary care physician (or PCP) who coordinates care. PCPs may be family practice doctors, internists, pediatricians, or other types of doctors. The PCP is responsible for referrals to specialists when needed. While most of these specialists will be "participating providers" in the HMO, there are circumstances in which patients enrolled in an HMO may be referred to providers outside the HMO network and still receive coverage.
PPOs and POS plans are categorized as managed care plans. In fact, POS plans are often referred to as an HMO with a point-of-service option. From the consumer’s point of view, these plans combine features of fee-for-service and HMOs. They offer more flexibility than HMOs, but premiums are likely to be somewhat higher.
With a PPO or a POS plan, unlike most HMOs, the patient will get some reimbursement if a covered service is received from a provider who is not in the plan. Of course, choosing a provider outside the plan’s network will cost more than choosing a provider in the network. These plans will act like fee-for-service plans and charge a coinsurance when going outside the network.
A POS plan has PCPs who coordinate patient care, and usually PPO plans do not. HMOs and PPOs have contracts with doctors, hospitals, and other providers. They have negotiated certain fees with these providers and they should not ask for additional payment other than a copayment at the time you receive care.