9.3 Managed Care: HMO, PPO, POS, and HSA/HDHP
Key Takeaways
- HMOs use a closed network with a PCP gatekeeper, copays, and no out-of-network coverage except emergencies.
- PPOs allow any provider with discounted in-network fees, no gatekeeper, and higher out-of-network cost.
- POS is the HMO/PPO hybrid; EPO uses a PPO network but offers no out-of-network coverage.
- Capitation pays providers a fixed per-member-per-month fee, shifting utilization risk to the provider.
- An HSA must pair with a qualifying HDHP and offers triple tax advantages with portable, rolling-over funds.
What Managed Care Changed
Managed care plans integrate the financing of care with the delivery of care, steering members to a contracted network of providers in exchange for lower cost. This contrasts with traditional fee-for-service (indemnity) insurance, where the insurer simply reimbursed any provider the insured chose. Managed care emphasizes preventive care, utilization review, and provider networks to control cost. The exam expects you to compare the four main models and the consumer-directed HSA/HDHP design.
Comparing the Four Models
| Feature | HMO | PPO | POS | HDHP |
|---|---|---|---|---|
| Primary care physician (PCP) gatekeeper | Required | Not required | Required for HMO-tier benefits | Varies |
| Out-of-network coverage | None (except emergencies) | Yes, at lower benefit | Yes, at higher cost | Yes, but member pays more |
| Referral to specialist | Through PCP | Direct | Through PCP for in-network | Varies |
| Cost / premium | Lowest premium | Higher premium, more freedom | Middle ground | Low premium, high deductible |
The POS plan is the hybrid: it works like an HMO when the member uses the PCP and network, but lets the member go out-of-network at point of service for reduced benefits.
HMO Mechanics
A Health Maintenance Organization provides care through a closed network and requires members to select a primary care physician who coordinates all care and issues referrals (the gatekeeper). Members generally pay small copayments with no deductible and have no out-of-network coverage except emergencies. HMOs often pay primary physicians by capitation — a fixed per-member, per-month amount regardless of services rendered — which shifts utilization risk to the provider and incentivizes prevention.
Trap: An HMO member who self-refers to an out-of-network specialist without PCP authorization typically receives no benefit and pays the full bill.
HMO Organizational Models
HMOs are organized in distinct models the exam tests by description. In the staff model, physicians are salaried employees of the HMO working at HMO-owned facilities. In the group model, the HMO contracts with a single multi-specialty physician group. In the IPA (Independent Practice Association) model, the HMO contracts with an association of independent physicians who practice in their own offices and may also see non-HMO patients. The network model contracts with multiple groups. Staff and group models are the most closed; IPA offers the most provider choice within the HMO framework.
Which managed care plan allows a member to use an HMO-style network at the lowest cost but also lets the member seek out-of-network care at the point of service for reduced benefits?
PPO and Network Discounts
A Preferred Provider Organization contracts with providers who agree to discounted fees in exchange for patient volume. Members may use any provider but pay less in-network and more out-of-network. There is no gatekeeper — members self-refer to specialists. An EPO (Exclusive Provider Organization) is a variant: it uses a PPO-style network but, like an HMO, provides no out-of-network coverage except emergencies. The trade-off across all models is premium versus freedom of provider choice.
HSA / HDHP and the 2026 Numbers
A High-Deductible Health Plan (HDHP) pairs a qualifying deductible with a tax-advantaged Health Savings Account (HSA). To be HSA-qualified, the plan must meet IRS minimum-deductible and maximum-out-of-pocket thresholds (indexed annually). HSA contributions are tax-deductible, the account grows tax-deferred, and withdrawals for qualified medical expenses are tax-free — a triple tax advantage. Unused balances roll over every year and the account is portable (owned by the individual, not the employer).
- To open an HSA you must be enrolled in an HDHP and not be enrolled in Medicare or claimed as a dependent.
- Non-qualified withdrawals before age 65 are taxed and hit with a 20% penalty; after 65 they are taxed but penalty-free.
- Compare to an FSA, which is employer-owned and generally use-it-or-lose-it (limited carryover).
Consumer-Directed Accounts Compared
Several tax-advantaged accounts pair with health plans, and the exam contrasts their ownership and rollover rules:
| Account | Owner | Requires HDHP | Rollover |
|---|---|---|---|
| HSA | Individual | Yes | Funds roll over indefinitely; portable |
| FSA | Employer | No | Use-it-or-lose-it (limited carryover/grace) |
| HRA | Employer | No | Employer decides; not portable |
| MSA (Archer) | Individual | Yes | Rolls over; largely closed to new entrants |
The HRA (Health Reimbursement Arrangement) is employer-funded only — employees cannot contribute — and reimburses qualified expenses. Because the employer owns it, unused funds usually do not follow a departing employee. Only the HSA combines individual ownership, portability, and unlimited rollover, which is why it is the most exam-tested account.
Which statement about a Health Savings Account (HSA) is correct?
Gatekeeper and Referral Rules Compared
The four models differ chiefly in provider choice and referral requirements:
| Model | Out-of-network | PCP gatekeeper |
|---|---|---|
| HMO | Not covered (except emergency) | Required referral |
| PPO | Covered at lower benefit | No referral needed |
| POS | Covered with referral at higher cost | PCP coordinates |
| EPO | Not covered | Usually no referral |
Trap: an HMO generally covers no out-of-network care except emergencies and pays providers on a capitation (per-member, per-month) basis, which is why it emphasizes prevention. A PPO trades higher premiums for the freedom to go out-of-network at a reduced benefit.
HSA Eligibility Rules
To contribute to an HSA, the individual must be enrolled in a qualifying high-deductible health plan (HDHP), have no other disqualifying coverage, and not be enrolled in Medicare or claimed as a dependent. HSA funds roll over year to year, are owned by the employee, and grow tax-free; qualified medical withdrawals are tax-free, while non-qualified withdrawals before 65 face income tax plus a 20% penalty.
Trap: an FSA is use-it-or-lose-it and employer-owned; an HSA is owned by the employee and fully portable. Enrolling in Medicare ends HSA eligibility to contribute (though existing balances remain usable).