The ins and outs of PPOs
A PPO, or preferred provider organization, is a managed care organization (MCO) that contracts with a network of doctors, hospitals, and other health care providers. These doctors and hospitals agree to provide health care to PPO members at lower rates, which allows the PPO to reduce overall health care costs.
Two characteristics in particular give PPOs their appeal.
The first is a PPO allows its plan members to visit any doctor or hospital without referrals from the members' primary care physicians (PCP). The need for a referral from a PCP is a characteristic of another popular type of managed care plan, the health maintenance organization (HMO).
The second appealing characteristic is the flexibility to visit doctors and hospitals outside the network. The caveat, though, is that visits outside the network are not as fully covered as visits within the network, requiring higher payments from the patient.
Still, both of these characteristics are very appealing to many employees, so it's worth your time to consider a PPO as part of your health benefits package.
The PPO network
Unlike HMOs, the law does not tightly proscribe PPO networks. As a result, PPO networks can range from very loose discounting agreements to fairly rigid networks with specific policies and oversight.
The type of network can significantly affect the benefits and drawbacks of joining a PPO. Loosely organized networks tend to offer the greatest choice for patients, with few treatment restrictions. On the downside, these networks are often not much better at controlling costs than traditional health insurance, which can result in higher premiums over time.
Tightly structured PPOs are often much better at controlling overall costs. By requiring patients to obtain referrals and second opinions before getting treatment, these networks can often reduce the overuse of health care. However, this often comes at the expense of the patients' ability to manage their own health care treatments.
Evaluating the network
When evaluating a PPO network, first inquire about the company's screening process when signing up physicians. A screening process should ideally include background checks and analysis of any previous malpractice issues.
Also ask how many of their network physicians the American Board of Medical Specialties has certified. To be certified, the physician must demonstrate competency in a specialty by passing tests or meeting training requirements. Ideally, 85 percent or more of the physicians should be board certified.
Some plans sign up doctors simply to boost their numbers. To get a better sense of the availability of doctors in the network, ask what percentage of their doctors is actually accepting new patients.
Also examine how second opinions are handled and how disputes in treatment are settled. PPOs should have a set procedure in place for disagreements to be aired before a grievance board.
Examining the policy
The ability to opt out of the network often lulls PPO members into a sense of false security. If the network is not up to snuff, people feel they can simply go outside the network for care. But in practice, many PPOs make it impractical to obtain care outside the network by setting high deductibles and co-insurance.
So if the appeal of PPOs is the flexibility it provides your employees in visiting any doctors they like, make sure deductibles and co-insurance do not drastically exceed what you would pay with a traditional insurance policy. Be wary of policies that require patients to co-insure more than 25 percent of the cost of treatment or that continue to charge co-insurance for costs in excess of $10,000.
Some policies limit out-of-network coverage to specific health conditions, or set artificially low limits on the maximum payment. As with any health insurance policy, you should look for coverage with at least a $1 million maximum payout.
Also watch out for low reimbursement levels. Some programs pay a set maximum per procedure, which may be far less than what a physician or doctor actually charges. If the reimbursement level is too low, the patient can be left paying the difference. To avoid this, check with a physician to see if reimbursement levels from the PPO are within the normal billing range.
Finally, look for a plan that offers a specified mechanism for handling member disputes. A clearly outlined appeals process will give members a way to protest unfair reimbursement levels or other problems. Consulting the state department of insurance, which keeps records of patient complaints, may also shed some light regarding patient satisfaction.
Pricing
PPOs cost an average of $3,321 per employee per year, according to the 1997 National Survey of Employer-Sponsored Health Plans by Mercer/Foster Higgins.
In terms of patient out-of-pocket costs, PPOs vary tremendously. Some networks require members to pay only a small deductible with each visit, much like an HMO. Others keep deductibles and co-insurance in place, but provide discounts off regular doctor and hospital charges.
