Health maintenance organization (HMO) plans have a restricted list of providers. They also require that patients see their primary care doctor first to get a referral to a specialist. If you think you need to see a cardiologist, for instance, you'll have to visit your primary care doctor first. The cardiologist will also have to be within the HMO network in order for the costs to be covered.
Out of network doctors, hospitals and lab facilities are not covered except in a medical emergency.
Preferred provider organization (PPO) refers to a health care plan with a large network of providers. With a PPO plan you'll have much more flexibility in choosing a doctor or hospital. You also won't need a referral to see a specialist; you'll be able to book the appointment on your own.
PPO plans often cover some portion of out of network doctors, hospitals and lab work, though you'll pay more than if you visit an in-network provider. You may also be covered if you receive care out of state.
An exclusive provider organization (EPO) doesn't require a referral to see a specialist like an HMO, but it also doesn't cover out of network providers like a PPO. EPOs usually have less expensive premiums than PPOs.
A point of service (POS) plan combines multiple aspects of PPO and HMO plans. Patients don't need referrals for specialists, but there is a fee for seeing someone out of network. You may be able to pay in network prices if your primary care doctor specifically refers you to an out of network specialist.
A high-deductible health plan (HDHP) has low monthly premiums and a high annual deductible. If you're young, healthy and don't have any dependents, an HDHP may be the least expensive health care option.
Consumers with HDHP plans are eligible to open and contribute to a health savings account (HSA). These accounts have pretax or tax-deductible contributions and tax-free withdrawals for most medical bills. Once you meet a certain threshold in your HSA, you can invest the money in mutual funds and stocks, just like you would with other investment accounts.
Why these acronyms matter
When you understand the difference between these health insurance acronyms, you'll be able to make more informed financial decisions. In order to understand how much a potential visit or procedure will cost, you need to understand the language these health care plans are written in.
This knowledge can also help you figure out which plan fits you best. Do you like the freedom of seeing any doctor? Do you have a chronic condition that requires a large team of specialists? Do you only see your doctor for an annual physical?
Think about your personal health concerns and requirements, and then use that information to decide what kind of health plan you need.