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

Managed Care and Consumer-Directed Plans

Managed care integrates the financing and delivery of healthcare to control cost and quality. Instead of simply reimbursing bills, the plan contracts with a network of providers, uses gatekeepers and utilization review, and rewards in-network use through lower cost-sharing. The exam expects you to distinguish the four major models and the consumer-directed HSA/HDHP pairing.

HMO (Health Maintenance Organization)

The HMO is the most restrictive, lowest-cost model. Key features:

• Members select a primary care physician (PCP) who acts as a gatekeeper; specialist visits require a referral.
• Coverage is generally in-network only; out-of-network care is not covered except true emergencies.
• Emphasis on preventive care (the HMO Act's original goal) with low copays.
• Providers are often paid by capitation — a fixed per-member-per-month amount regardless of services used, shifting risk to the provider.

PPO (Preferred Provider Organization)

The PPO trades cost control for flexibility:

• No PCP and no referrals — members self-refer to any provider.
• Both in-network and out-of-network care are covered, but out-of-network carries higher deductibles and coinsurance.
• Providers are typically paid on a discounted fee-for-service basis.

POS (Point of Service)

The POS is a hybrid: it requires a PCP gatekeeper like an HMO, but allows out-of-network care like a PPO at the point of service for higher cost-sharing. Think "HMO inside, PPO outside."

HMO organizational models

The exam sometimes asks how HMOs structure their physicians:

• Staff model — physicians are salaried employees of the HMO practicing in HMO facilities.
• Group model — the HMO contracts with one multi-specialty group practice, paid by capitation.
• IPA (Independent Practice Association) model — the HMO contracts with an association of independent physicians who keep their own offices and may see non-HMO patients.
• Network model — the HMO contracts with multiple groups and providers, blending the above.

Understanding capitation here is key: in staff and group models the HMO controls cost directly through salary or group capitation, while the IPA model preserves provider independence.

EPO and the model comparison

An EPO (Exclusive Provider Organization) covers in-network care only (like an HMO) but usually does not require a PCP or referrals (like a PPO). Use this comparison table on exam day:

Consumer-Directed: HDHP + HSA

A High-Deductible Health Plan (HDHP) is a qualifying plan with a high minimum deductible and a capped out-of-pocket maximum. It pairs with a Health Savings Account (HSA) — a tax-advantaged account that delivers a triple tax advantage: contributions are tax-deductible, growth is tax-deferred, and qualified medical withdrawals are tax-free.

HSA rules the exam tests:

• The HSA owner must be covered by a qualifying HDHP and have no other disqualifying coverage (and not be enrolled in Medicare or claimed as a dependent).
• Funds roll over year to year and are fully portable — the account belongs to the individual, not the employer.
• Non-qualified withdrawals before age 65 are taxable plus a 20% penalty; after 65, non-qualified withdrawals are taxable but penalty-free.

For 2025, the HSA contribution limit is $4,300 (self-only) and $8,550 (family), with a $1,000 catch-up for those age 55+. To qualify in 2025, the HDHP minimum deductible is $1,650 self-only / $3,300 family. Compare to a Flexible Spending Account (FSA), which is employer-owned, generally use-it-or-lose-it, and not portable.

HSA, HRA, and FSA distinguished

The three tax-advantaged accounts are frequent distractors:

An HRA is funded solely by the employer, who decides whether unused amounts roll over; the employee never contributes. An FSA lets the employee set aside pre-tax salary, but unused funds are generally forfeited at year-end, subject to a limited grace period or small carryover the employer may allow. Only the HSA combines individual ownership, full portability, and unlimited rollover, which is why it is the centerpiece of consumer-directed health care and the most-tested of the three.

Worked example: An employee elects $2,500 into a Healthcare FSA but incurs only $1,800 of qualified expenses. Under the use-it-or-lose-it rule, the remaining $700 is generally forfeited (absent a permitted grace period or carryover). The same shortfall in an HSA would simply roll over and remain the employee's property.

HSA Eligibility and the Managed-Care Spectrum

The HSA carries specific eligibility rules the exam tests with numbers. To open or contribute to an HSA, the individual must be covered by a qualified high-deductible health plan, must have no other disqualifying first-dollar coverage, and must not be enrolled in Medicare or claimed as a dependent. The HDHP must meet annual minimum-deductible and maximum-out-of-pocket thresholds set by the IRS, and contributions are capped at separate self-only and family limits, with an extra catch-up amount allowed at age 55 and older.

HSA funds grow tax-free, are owned and portable by the individual, and may be withdrawn tax-free for qualified medical expenses; non-medical withdrawals before age 65 are taxable plus a 20% penalty, while after 65 they are merely taxable, like a traditional IRA.

Place the managed-care models on a spectrum from most to least restrictive. An HMO is most restrictive, requiring members to use network providers, choose a primary care physician, and obtain referrals to see specialists, with no out-of-network coverage except emergencies, in exchange for the lowest premiums and copays. A PPO is least restrictive, allowing members to see any provider and skip referrals, paying more for out-of-network care in exchange for higher premiums. A POS plan blends the two, using an HMO-style gatekeeper PCP and referrals but permitting out-of-network care at a higher cost.

An EPO sits between, requiring network use like an HMO but usually waiving the referral requirement. Matching a client who wants the lowest cost and accepts gatekeeping to an HMO, and a client who values provider freedom to a PPO, answers most managed-care suitability items.