9.3 Managed Care: HMO, PPO, POS, and HSA/HDHP

What Managed Care Means

Managed care controls cost and quality by contracting with networks of providers and steering members to them. The national exam tests the differences among HMO, PPO, POS, and the consumer-directed HSA/HDHP design. Memorize who needs a primary care physician (PCP), referrals, and whether out-of-network care is covered.

Plan-Type Comparison

HMO - Health Maintenance Organization

HMOs emphasize preventive care and require members to choose a PCP who acts as a gatekeeper, coordinating all care and issuing referrals. HMOs pay providers on a capitation basis (a fixed per-member amount) and generally cover only in-network care except for true emergencies. Lowest premiums, least flexibility.

PPO - Preferred Provider Organization

A PPO contracts with preferred providers at discounted (fee-for-service) rates. Members may self-refer, see specialists directly, and use out-of-network providers at a higher cost (lower coinsurance, separate deductible). No gatekeeper. Greatest flexibility, highest premium.

POS - Point of Service

A POS plan is a hybrid: it uses an HMO gatekeeper PCP for the lowest cost but lets members go out-of-network like a PPO at the point of service, paying more. "Point of service" means the choice is made each time care is needed.

HSA + HDHP - Consumer-Directed Care

A High-Deductible Health Plan (HDHP) pairs with a tax-advantaged Health Savings Account (HSA). To be HSA-eligible, the plan must meet IRS minimum deductible and maximum out-of-pocket thresholds and may not provide non-preventive benefits below the deductible.

Exam numbers (2025): HDHP minimum deductible $1,650 self / $3,300 family; HDHP out-of-pocket max $8,300 self / $16,600 family. HSA contribution limit $4,300 self / $8,550 family, plus a $1,000 catch-up at age 55+.

HSA Key Rules

• Contributions are tax-deductible (or pre-tax through an employer cafeteria plan).
• Funds grow tax-deferred and are tax-free when used for qualified medical expenses.
• The account is owned by the individual, is portable, and rolls over year to year (unlike an FSA).
• Non-qualified withdrawals before age 65 incur income tax plus a 20% penalty; after 65 they are taxed as income with no penalty.

Worked Numeric: HSA Triple Tax Advantage

An individual in the 24% bracket contributes $4,300 to an HSA and spends it on qualified care.

Federal tax saved on contribution: $4,300 x 24% = $1,032
Growth while invested:             tax-deferred
Withdrawal for qualified expense:  tax-free
Net cost of $4,300 of care:        $3,268

Other Tax-Advantaged Accounts

The exam distinguishes the HSA from related accounts. Knowing ownership, rollover, and the required plan type prevents the most common test errors.

Trap: A Flexible Spending Account (FSA) is employer-owned and generally forfeited at year-end, while an HSA is individually owned and rolls over forever. An HRA is funded only by the employer. Only the HSA travels with the employee to a new job.

Network Tiers and Balance Billing

Managed-care plans define in-network providers (contracted, lowest cost) and out-of-network providers. With an HMO, going out of network usually means no coverage except emergencies. With a PPO or POS, out-of-network care is covered but at a higher deductible and lower coinsurance, and the provider may balance bill the insured for charges above the plan's allowed amount. The federal No Surprises Act limits surprise balance billing for certain emergency and out-of-network facility-based care.

Choosing a Plan for a Client

Producers match plan design to client needs:

• A healthy client who wants the lowest premium and is willing to fund an account may prefer an HDHP with an HSA.
• A client with chronic conditions and frequent specialist visits may prefer a PPO for direct specialist access.
• A budget-conscious client comfortable with a gatekeeper may prefer an HMO for the lowest cost-sharing.

The exam frames these as suitability scenarios; read for the client's priority (cost vs. flexibility) to pick the right plan.

Open-Panel vs. Closed-Panel HMOs

HMOs differ by how they organize physicians, and the exam tests the vocabulary. A closed-panel HMO (staff or group model) uses physicians who serve only HMO members - staff-model doctors are salaried employees, group-model doctors contract through one multi-specialty group. An open-panel HMO (IPA or network model) contracts with independent physicians who also treat non-HMO patients, often paid by capitation. The distinction signals provider exclusivity, not the member's referral rules.

Emergency and Out-of-Area Coverage

Managed-care plans must cover emergency care even out of network, because federal law (and the prudent-layperson standard) requires that a reasonable person believing they face an emergency be covered without prior authorization. HMO members traveling out of the service area are covered for true emergencies but generally not for routine care, so the exam distinguishes emergency from elective out-of-area treatment.

Dependent and Pediatric Coverage in Managed Care

Managed-care plans, like all ACA plans, cover dependent children to age 26 and must include pediatric services among the Essential Health Benefits. A POS or PPO family can use out-of-network pediatric specialists at higher cost; an HMO family must use in-network pediatric providers and obtain referrals through the child's PCP gatekeeper. This ties the managed-care access rules back to family eligibility.