HMOs and PPOs - What are they?

If you wonder about the differences between HMOs and PPOs, you'll find the answers here. And if you're not sure what either is, we can shed some light on that, too. First, though, a little history, just for context.

Back when insurance was first invented, it was a matter of paying the premium, going to your doctor, and paying the bill. If the service was covered in your policy, you filed a claim and the insurance company reimbursed you for their part. That's called Fee for Service (FFS) or Point of Service (POS) coverage, because all billing and payment take place at the point the service is provided.

As medical insurance became more commonplace, insurers developed other types of coverage. These days, we have three broadly defined categories of coverage - FFS and POS are called "traditional plans," and then there's Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans. This site discusses each plan in depth, and then offers a comparison of the different kinds of health plans.

Health Maintenance Organization (HMO) plans

Preferred Provider Organization (PPO) plans

Traditional Insurance

First is Fee for Service (FFS) or Point of Service (POS) coverage. It's what usually comes to mind these days when people think of "traditional" insurance. Your healthcare provider has a set fee for each service he or she offers, and your doctor bill is basically a checklist of codes connected to those services.

Based on the codes your doctor checks, the office creates a billing statement for your insurance company. The insurance company pays their share, which is based on several things, including "usual and customary rates" and the discounts they've agreed on with your healthcare provider in exchange for increased business as part of a network.

If you want to know more about FFS or POS coverage or the history of health insurance, check out some of our other Stay Smart Stay Healthy videos.

Watch Healthcare Video: What are PPOs and HMOs?