9.3 Managed Care: HMO, PPO, POS, and HSA/HDHP
Key Takeaways
- HMOs require a PCP gatekeeper and referrals and pay no out-of-network benefits except emergencies; they are the most restrictive, lowest-cost model.
- PPOs allow self-referral and out-of-network care at higher cost-sharing; POS plans blend the HMO gatekeeper with optional out-of-network use.
- HMO models include staff, group, IPA, and network; capitation pays providers a fixed amount per member to incentivize prevention.
- An HSA requires a qualifying HDHP, is individually owned and portable, rolls over annually, and offers triple tax advantages.
- HSA contributions stop at Medicare enrollment; non-qualified withdrawals before age 65 are taxed plus a 20% penalty.
Managed care controls cost and quality by integrating financing with the delivery of care: insurers contract with networks of providers, emphasize prevention, and apply utilization review. The exam tests the structural differences among the four major arrangements. Anchor your understanding on three dimensions: do you need a primary care physician (PCP) gatekeeper, do you need referrals to see specialists, and is there any out-of-network coverage.
Comparison of Managed Care Models
| Model | PCP/Gatekeeper | Referral to specialist | Out-of-network coverage | Payment style |
|---|---|---|---|---|
| HMO | Required | Required | None (except emergencies) | Copays; capitation to providers |
| PPO | Not required | Not required | Yes, at higher cost-sharing | Discounted fee-for-service |
| POS | Required | Required for in-network | Yes, with referral or higher cost | Hybrid of HMO/PPO |
| EPO | Often not | Usually not | None | Network discounts |
The HMO is the most restrictive and lowest-cost; the PPO is the most flexible; the POS is a hybrid that uses the HMO gatekeeper model but lets members go out of network at greater expense.
How HMOs Work
The HMO emphasizes prepaid, preventive care. Members select a PCP who manages care and issues referrals. Providers are often paid by capitation a fixed monthly amount per member regardless of services rendered which shifts utilization risk to providers and incentivizes prevention. There are several HMO organizational models tested:
- Staff model physicians are salaried employees of the HMO.
- Group model the HMO contracts with one multispecialty group.
- Independent Practice Association (IPA) the HMO contracts with associations of independent physicians who keep their own offices.
- Network model the HMO contracts with multiple groups.
Because HMOs generally provide no out-of-network benefits except for emergency care, the trap exam answer involves a member seeking a non-emergency specialist without a referral the HMO owes nothing.
HSAs and High-Deductible Health Plans
A Health Savings Account (HSA) is a tax-advantaged account that must be paired with a qualifying High-Deductible Health Plan (HDHP). Contributions are tax-deductible, growth is tax-deferred, and withdrawals for qualified medical expenses are tax-free a triple tax advantage. The IRS sets annual figures; for 2025 the HDHP minimum deductible is $1,650 self-only / $3,300 family, and the HSA contribution limit is $4,300 self-only / $8,550 family, with a $1,000 catch-up at age 55+.
Key HSA rules tested:
- The account is owned by the individual and is fully portable it follows the person across jobs and into retirement.
- Funds roll over year to year (unlike an FSA's use-it-or-lose-it).
- You cannot contribute once enrolled in Medicare.
- Non-qualified withdrawals before age 65 are taxed and hit with a 20% penalty; after 65 the penalty disappears (income tax still applies to non-medical use).
Contrast related accounts: an FSA is employer-owned, has limited carryover, and is funded by salary reduction; an HRA is employer-funded and employer-owned.
Comparing the Managed-Care Models
| Model | Out-of-network coverage | Primary care gatekeeper | Cost vs. freedom |
|---|---|---|---|
| HMO | Generally none (emergencies excepted) | Yes — PCP referrals required | Lowest cost, least freedom |
| PPO | Yes, at higher cost-share | No referral needed | Higher cost, most freedom |
| POS | Yes, but PCP referral needed for best rate | Yes (hybrid) | Middle |
| EPO | None out-of-network | Usually no referral | Low cost, no out-of-network |
The HMO uses a PCP gatekeeper and capitation; the PPO uses negotiated discounts and lets members self-refer. The POS is the hybrid: HMO-style in-network with PCP referrals, PPO-style out-of-network at higher cost. Matching "wants to see any specialist without a referral" to PPO, and "lowest premium, willing to use a gatekeeper" to HMO, is the standard managed-care exam judgment.
HSA/HDHP Mechanics
A Health Savings Account (HSA) must be paired with a qualifying High-Deductible Health Plan (HDHP). Contributions are tax-deductible, growth is tax-deferred, and qualified medical withdrawals are tax-free — a triple tax advantage. Funds roll over year to year (unlike a use-it-or-lose-it FSA) and are portable if the owner changes jobs.
Non-medical withdrawals before age 65 are taxed as income plus a 20% penalty; after 65 the penalty disappears (income tax still applies to non-medical use). The HDHP must meet IRS minimum-deductible and out-of-pocket-maximum thresholds to qualify. The exam stresses that you cannot open an HSA without an HDHP and contrasts the HSA's rollover/portability with the FSA's forfeiture rule.
Worked HDHP/HSA Funding Example
Assume an HDHP with a $3,000 deductible and an HSA. The employee contributes $200/month ($2,400/year), all tax-deductible. A $2,400 covered claim arises early in the year before the deductible is met.
Because the deductible is not yet satisfied, the plan pays nothing on this claim — but the member can pay the $2,400 from the HSA tax-free, effectively covering it with pre-tax dollars. Any unspent HSA balance rolls into next year and keeps growing. Compare an FSA: an unspent FSA balance would generally be forfeited at year-end. The exam uses this to test the HSA's rollover/portability advantage and the requirement that an HSA must be paired with a qualifying HDHP.
An HMO member visits a specialist without first obtaining a referral from the primary care physician, and the visit is not an emergency. What is the HMO's obligation?
Which statement about a Health Savings Account (HSA) is correct?