12.2 Medical Plans: HMO, PPO, POS, EPO, HDHP/HSA
Key Takeaways
- HMOs require an in-network primary care physician (PCP) gatekeeper and pay providers on a prepaid, capitated basis emphasizing preventive care.
- PPOs offer the most freedom: no PCP, no referrals, and out-of-network coverage at a higher cost share.
- POS plans blend HMO and PPO: a PCP gatekeeper with the option to go out-of-network at higher cost.
- EPOs use a network like an HMO but drop the PCP/referral requirement; out-of-network care is generally not covered.
- A High-Deductible Health Plan paired with an HSA lets the insured save pre-tax dollars; 2026 minimum deductibles are $1,700 (self) / $3,400 (family).
The Two Axes That Define Every Plan
Managed-care medical plans are easiest to learn by asking two questions:
- Does the plan require a Primary Care Physician (PCP) gatekeeper and referrals to see specialists?
- Does the plan pay anything for out-of-network care?
| Plan | PCP / referral required? | Out-of-network covered? |
|---|---|---|
| HMO (Health Maintenance Organization) | Yes | No (emergencies only) |
| POS (Point of Service) | Yes | Yes, at higher cost |
| EPO (Exclusive Provider Organization) | No | No (emergencies only) |
| PPO (Preferred Provider Organization) | No | Yes, at higher cost |
Memory hook: Going down the list, freedom increases. HMO is the most restrictive and lowest cost; PPO is the most flexible and highest cost.
Health Maintenance Organization (HMO)
An HMO delivers care through a closed network and emphasizes prevention and wellness. Key features:
- The insured selects a Primary Care Physician (PCP) who acts as a gatekeeper and must issue a referral before the insured sees a specialist.
- Providers are often paid by capitation — a fixed per-member, per-month amount regardless of services used — which shifts utilization risk to the provider.
- The HMO pays for prepaid care; the insured generally pays only small copays, not coinsurance.
- Out-of-network care is not covered except in a true emergency.
Because the HMO both finances and arranges care, it controls cost tightly but limits choice. An HMO is best for a client who wants low predictable cost and is willing to stay in-network.
PPO, POS, and EPO
Preferred Provider Organization (PPO): A network of providers offers discounted (negotiated) rates. The insured may see any provider with no PCP and no referral. In-network care has the lowest cost share; out-of-network care is covered but at a higher deductible and coinsurance and may involve balance billing.
Point of Service (POS): A hybrid. The insured chooses a PCP gatekeeper like an HMO, but at the point of service may step outside the network and still receive benefits at a higher cost share.
Exclusive Provider Organization (EPO): Network-only like an HMO, but no PCP and no referrals are required. Out-of-network care is generally not covered.
| Want lowest cost, OK staying in-network | Want freedom + out-of-network option | Want no referrals but stay in-network |
|---|---|---|
| HMO | PPO | EPO |
High-Deductible Health Plan (HDHP) + Health Savings Account (HSA)
A consumer-directed approach pairs a High-Deductible Health Plan (HDHP) with a Health Savings Account (HSA). The HDHP has a high deductible and low premium; the HSA lets the insured save pre-tax dollars to pay qualified medical expenses.
2026 IRS Limits
| Item | Self-only | Family |
|---|---|---|
| Minimum HDHP deductible | $1,700 | $3,400 |
| Maximum out-of-pocket | $8,500 | $17,000 |
| HSA contribution limit | $4,400 | $8,750 |
- HSA contributions are tax-deductible; growth is tax-deferred; withdrawals for qualified medical expenses are tax-free (a triple tax advantage).
- HSA funds roll over year to year and are owned by the individual (portable).
- A catch-up of $1,000 applies at age 55+.
- Non-medical withdrawals before age 65 are taxed and incur a 20% penalty; after 65 they are taxed but not penalized.
An HSA requires HDHP coverage. An FSA (Flexible Spending Account), by contrast, is employer-owned and largely use-it-or-lose-it.
Related Consumer-Directed Accounts
The HSA is one of several tax-advantaged accounts the exam compares:
| Account | Owner | Requires HDHP? | Rollover |
|---|---|---|---|
| HSA (Health Savings Account) | Individual | Yes | Yes (portable) |
| FSA (Flexible Spending Account) | Employer | No | Mostly use-it-or-lose-it |
| HRA (Health Reimbursement Arrangement) | Employer | No | Employer's option |
| MSA (Archer Medical Savings Account) | Individual | Yes (legacy) | Yes |
Trap: Only the HSA and the legacy Archer MSA require an HDHP and are individually owned and portable. An HRA is funded solely by the employer and reimburses qualified expenses; the employee cannot contribute. An FSA can be funded by salary reduction but is forfeited (subject to a small carryover or grace period) at year-end. Choosing the right account is a common scenario question: a self-employed client with an HDHP who wants a portable, rolling, triple-tax-advantaged account should use an HSA.
A client wants to keep her current specialist who is NOT in any network, but also wants the lowest possible premium when she uses in-network providers, and she does not mind selecting a primary care physician. Which plan best fits?
Which statement about a Health Savings Account (HSA) is TRUE?
Worked Numeric: HMO vs. PPO Out-of-Network Cost
The core trade-off is cost control vs. provider freedom. An HMO requires a primary care physician (PCP) gatekeeper and referrals, covers in-network only (except emergencies), and has the lowest premium. A PPO allows out-of-network care at a higher cost and needs no referrals. EPO = no out-of-network coverage but usually no referral requirement; POS = HMO-style gatekeeper but allows out-of-network at reduced benefits.
Worked example: a PPO pays 90% in-network / 60% out-of-network after deductible. A $4,000 out-of-network procedure (deductible already met) is reimbursed at 60% = $2,400, leaving the member $1,600 - versus $400 if in-network. The same care in an HMO would be $4,000 out of pocket because non-emergency out-of-network care is not covered at all. This sharp difference is the most tested HMO-vs-PPO point.