Example

Julia’s Story

Julia just started a new job. She is very excited that this job comes with benefits, including employer-sponsored group health coverage. The company she is working for offers two different plans that she can choose from: a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO).

Julia is not sure which plan is best for her, so she decides to do some research online to learn the differences between them. After doing some research, Julia feels like she understands what these types of plans are, but she still doesn’t know which plan is best for her or how much they cost.

She decides to talk to her company’s Human Resources manager, Marjorie, about how much each of the different plans would cost. She learns that she would have to pay $50 a month to enroll in the PPO, but would have no monthly premium for the HMO. She is confused by this, because she thought that all health coverage was free when you get it through your job.

Marjorie explains that each health care plan requires a monthly premium and that the company will pay up to $200 of that premium. Any premium cost over the $200 is paid by the employee.

With the HMO plan, the premium is $200 per month, so the company would cover the whole cost and the employee wouldn’t have to pay anything.

With the PPO plan, the premium is $250 per month, so the company would pay the first $200 and the employee would pay the remaining $50.

Julia wonders why anyone would choose to pay more when they could get a plan for less money. When she asks Marjorie about this, Marjorie says that it depends on what people are looking for in a plan.

“The PPO is our more expensive plan, because that plan has a lot of freedom and flexibility," Marjorie explains. "You can go straight to a specialist when you need one, and there are many doctors you can choose from. With the HMO, you have your care managed by a primary care provider (PCP), who refers you to a specialist when the PCP thinks it is needed. This keeps the insurance company’s costs down, which is one reason it’s cheaper.”

Being able to have a choice about doctors is important to Julia, but so is cost. She understands why the PPO plan is more expensive, because you can choose among more doctors and don’t have to see a PCP. But she still isn't sure if that would be worth an extra $50 a month for her.

Marjorie then explains that there are additional costs to consider, like copayments and deductibles. "Each time you get a medical service, you have to pay a copayment," she says. "The $50 PPO plan has a $20 copayment, and the 'free' HMO plan has a $45 copayment. That means with the HMO plan, you'll be paying more each time you get a medical service."

So if Julia doesn’t plan on going to the doctor very often, it makes more sense to get the “free” plan. But if she ends up going to the doctor three times a month, and paying $45 each time, she'd be spending $135 a month just on copayments! On the PPO plan, if she went to the doctor three times a month, she'd be paying $20 for each visit, plus the $50 monthly premium, for a total of $110 a month. So if she plans to see the doctor a lot, it would save her money to pay a higher premium up front.

She also learns that the HMO plan has a $500 deductible, which means you have to spend $500 on medical care before the plan will start to help pay for costs. The PPO plan doesn't have a deductible.

Marjorie gives her some booklets about the different plans to read through. There are so many factors to think about. Finally, Julia decides to come up with a list of the things that are most important to her about a health care plan. Because of her disability, she goes to the doctor often for tests and checkups, so she needs a plan where it is affordable to see the doctor often. She also has lived with her disability for years and has learned a lot about what kind of care she needs, so she would like to be able to see a specialist without a referral. Finally, she can’t afford to spend a total of more than $200 a month on her health care, including premium payments and copayments.

She looks again at each of the plans. She decides that the PPO plan is the best for her, because it will give her the option to see a specialist without a referral; it will make it more affordable to go to the doctor more often; it has no deductible; and it will allow her to keep her monthly health care costs manageable.