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Provider Networks Explained

One of the most basic and important concepts in the world of health care and insurance is the provider network. A provider network is made up of the doctors, hospitals, clinics, and other health care professionals and facilities that a health plan contracts with to offer services at reduced costs.

Provider networks are an integral part of managed care plans—systems put in place by health insurance companies to help manage the quality and costs of medical services that their members receive.

There are three main types of managed care plans. The plan you have determines your access to health care providers (whether in or out of network) and how much you will pay out of your own pocket each time you receive care.

Health maintenance organizations (HMOs) contract with health care providers (doctors, hospitals, pharmacies) to provide health care services for members in a particular geographic area. This type of plan is unique in that it both pays for and provides medical care. Members are required to receive all of their care from a provider who is either employed by or under contract to the HMO. If you receive care from a provider outside the network, the HMO will not pay for that care unless you received prior authorization from the HMO, or your condition was judged an emergency.

In an HMO, you need to choose a primary care physician (PCP) within the network to manage your care and coordinate with other health care professionals when necessary. Should you require the care of a specialist (such as a cardiologist or dermatologist) or need diagnostic services (such as lab tests or X-rays), your PCP will need to provide a referral to a specialist or facility within your network. If you do not have a referral, or if you choose a provider outside the HMO’s network, you will be responsible for most, if not all, of the costs for that care.

HMOs are the most restrictive type of health plan because they generally offer the narrowest networks and the fewest provider choices. However, they also typically cover a wide range of services at lower out-of-pocket expenses.

You pay the HMO a monthly or quarterly premium to cover the costs of your care. Many HMOs require a small copayment for doctor’s visits and emergency-room visits.

Why choose an HMO? An HMO may be a good option for you if you’re willing to limit your provider choices in exchange for lower costs.

Preferred provider organizations (PPOs), like HMOs, contract with a network of preferred or “in-network” providers. But unlike HMOs, PPOs allow members to see out-of-network providers as well. You’ll receive “richer” benefits (the plan will pay more of your costs) when you visit health care providers within the network.

PPOs also differ from HMOs in that you do not need to choose a PCP to manage your care. Nor do you need a referral to see a specialist. Again, you’ll receive greater benefits when you visit providers within your network.

The price of this freedom is generally higher out-of-pocket costs than HMOs. In addition to monthly premiums, you will pay a small copayment or deductible/coinsurance for each doctor’s visit, prescription refill, and hospital stay. Some services are subject to a deductible and coinsurance amount as well.

Why choose a PPO? A PPO may be a good option for you if you value the freedom to see any provider you wish (both inside and outside the network) without needing a referral from a PCP.

Point-of-service plans (POS) combine aspects of both HMO and PPO plans. They are sometimes referred to as “open-ended HMOs” because they encourage—but do not require—the use of PCPs, and they allow members to see any providers they wish, with or without a referral.

Like the other plans, POS plans use networks of contracted health care providers. Members are encouraged to choose a PCP who becomes their “point of service” for referrals to other health care providers, either in or out of the network. Members pay lower out-of-pocket costs and receive richer benefits when they receive care from providers within the network. While you may choose to see a specialist without a referral from your PCP, you’ll pay significantly more to see that specialist even if he or she is in the network.

POS members pay a monthly premium (often lower than a PPO, but higher than an HMO) and copayments for care received through the network. If a member receives care from an out-of-network provider, he or she may have to pay a deductible and a higher coinsurance rate.

Why choose a POS? A POS may be a good option for you if you want a “middle-of-the-road” plan that offers greater freedom of choice than an HMO and generally lower costs than a PPO.