HMO, EPO, POS, & PPO Health Insurance Basics

With open enrollment season in full swing, it's a good idea to go through the many health insurance plans to choose from. The options can quickly get overwhelming. However, understanding the fundamentals will help simplify your decision.

By the end of this article you'll understand the four main types of health insurance and know how to quickly compare HMO, EPO, POS, and PPO plans. Knowing the details of each plan is particular helpful if you have to pay for your own health insurance as a freelancer or entrepreneur.

We'll also cover other important aspects of health insurance plans such as metal tiers, deductibles, copays, coinsurance, HSAs, and Flex Spending accounts. The more you understand about how health insurance plans are structured, the easier it is to compare plans and make a suitable selection for your needs.

Four Main Types Of Health Insurance Plans – HMO, EPO, POS, PPO

To start off, let's summarize the four main types of health insurance plans available today. They are HMO, EPO, POS, and PPO. Understanding the basics of each can help a lot with deciding which type of plan is best for your needs.

If you're selecting a plan during open enrollment season with your employer, the number of choices available to you will vary based on your employer's benefits package. The benefits available to you can change from one year to the next depending on the plans your employer selects. Some employers offer all four types of health plans, while others may only offer one or two plan types.

HMO – Health Managed Organization

If you're on a tighter budget and don't have any major medical issues, an HMO can be a suitable low-cost plan option. Referrals from a PCP are required to see specialists, however, and only in-network providers are covered. But, emergency care at out-of-network facilities is typically covered.

EPO – Exclusive Provider Organization

If you want to avoid needing referrals to see specialists but don't want to pay PPO prices, consider an EPO. These plans only cover an exclusive, aka in-network, list of doctors. But like an HMO, out-of-network emergency care is typically covered.

POS – Point Of Service

As a hybrid of an HMO and PPO, a POS plan typically requires referrals from a PCP to see specialists. However, unlike an HMO you can get access to out-of-network benefits. Monthly premiums for POS plans typically cost more than HMOs and EPOs but less than PPOs.

PPO – Preferred Provider Organization

If you are willing to pay more money for flexibility, consider a PPO. They tend to come with a larger network of doctors and also provide benefits for out-of-network care. Referrals to specialists are not required, so this can save time and hassle if you have the financial means to pay a higher monthly premium.

Further reading: What Is POS vs PPO Health Insurance? The Costs And Benefits

How To Compare HMO, EPO, POS, PPO Health Insurance

Here's a helpful table that compares the features of the four main types of health insurance. Keep in mind this is a general comparison. Some specific plans within each type of health insurance may have their own variances. Thus, always review the details of any health insurance plan before selecting it for your needs.

Plan TypeLow DeductibleLow PremiumPCP Req.Referrals Req.OON CoverageClaim Forms
EPOYesYesNoSome plansNoNo
POSYesYesYesYesYesYes for OON
PPOSome plansNoNoNoYesYes for OON

Notes: OON stands for Out-of-network, PCP stands for Primary Care Physician, and Req. stands for Required

The Four Metal Tiers Of Health Insurance Plans

Within each type of plan, there are four metal levels to choose from. Bronze, Silver, Gold, and Platinum.

Bronze plans are at the bottom of the scale and typically offer lower premiums for reduced benefits and higher out of pocket costs. Platinum plans are at the upper end of the scale and thus have higher premiums and offer the most benefits.

We used to have a Platinum plan, but decided to downgrade to a Gold plan based on carefully analyzing our health and doctors visits. It may take a couple years for you to better understand your actual health insurance needs.

The four metal tiers of health insurance plans - Bronze, Silver, Gold, and Platinum

Similar to plan type, your employer may offer plans in all four metal tiers or less depending on their benefits package choices.

In addition, here's how many insurance companies typically split costs by metal category. This is called co-insurance.

Plan CategoryWhat The Insurance Co PaysWhat You Pay

What Is An HDHP, HSA, And FSA?

When comparing health insurance plans, you may also come across some other terms such as HDHP, HSA, and FSA. With so many different acronyms, health insurance can get confusing. Here's a simple explanation of what HSAs, FSAs, and HDHPs are below.

HDHP – High Deductible Health Plan

Although some health insurance plans do not have any deductibles, most do. The amount of the deductible can range anywhere from a couple hundred dollars to multiple thousands of dollars. Plans that have expensive deductibles can be classified as HDHPs or High Deductible Health Plans. Any of the four main types of health insurance (HMO, EPO, POS, PPO) can offer HDHPs.

As far as the deductible amount goes, each year the IRS determines what is considered “high.” For 2021, the minimum annual deductible for self-only HDHP coverage is $1,400 and $2,800 for family coverage. There's also a limit on the maximum annual deductible and other out-of-pocket expenses which are $7,000 and $14,000 respectively.

As parents of two young kids, we decided not to go with a HDHP in the first five years of life. You should never know what type of medical issues might come up in the beginning.

HSA – Health Savings Account

When you are looking at HDHP plans, you'll also come across the term HSA. An HSA or Health Savings Account is not a type of managed care itself. The simplest way to think of an HSA is like a tax-advantaged savings account for qualified medical expenses. For an HMO or other type of health insurance policy to be HSA eligible, it needs to be a high deductible health plan, aka HDHP.

Some employers distribute funds into employees' HSA accounts as part of their benefits package. Employees can also make pre-tax contributions into an HSA account. These funds can then be used towards deductibles, co-pays, co-insurance and some other expenses, but not towards premiums. Some may even use the HSA plan as a type of retirement account.

As with most tax-advantaged accounts, there are limits to how much you can contribute to an HSA. For 2021, the max is $3,600 for self-coverage and $7,200 for family coverage. The limits rise slightly for 2022 to $3,650 and $7,300 respectively. HSA funds roll over year to year if you don't spend them. And, an HSA can earn tax-free interest or other earnings. Depending on your circumstances, using an HSA may save you about 30%.

Any of the main types of health insurance plans (HMO, EPO, POS, PPO) can offer HSA qualified plans. So you can purchase a POS HSA-eligible plan, HMO HSA-eligble plan etc. But in order for a specific insurance policy to qualify as an HSA, it has to meet strict requirements set by the IRS.

Also, be aware that you have to qualify yourself. For example, you can't have Medicaid, can't be a dependent on someone else's tax returns, and a few other things per Publication 969. If you qualify, you'll also need to file Form 8889 with your tax return.

Further Reading: The Pros And Cons Of A Health Savings Account (HSA)

FSA – Flexible Spending Account

Another acronym that pops up when looking at health insurance plan options is FSA, which stands for Flexible Spending Account. If your employer offers health FSAs, you can set aside pre-tax income into this account to use for out-of-pocket health care expenses. Since you don't have to pay any taxes on the money you put into an FSA, it's a good way to save some money on taxes that you can put towards healthcare.

A few examples of expenses you can use FSA funds for include deductibles, copays, certain medications, bandages, blood sugar test kits, crutches, etc. Here's a list of typically permitted FSA expenses.

Employers can make contributions to your FSA, but aren’t required to. And there is a $2,750 contribution limit per employee as of 2021. FSAs are also designed for you to use all the money you contribute to them per plan year. So it's important not to put in more money than you think you'll spend, otherwise you could lose it. However, some employers offer a 2.5 month grace period or allow up to $550 to carry over into the next year.

And keep in mind that FSAs require paperwork. In order to access the money you put into them, you have to file claims through your employer. You need to show proof of your out-of-pocket payment including the date, type of expense, and an itemized receipt. Although it can be a bit of a pain to file claims, it's a great way to save money if your employer offers FSA benefits.

Find A Health Insurance Plan That Fits Your Needs

Health Insurance HMO EPO POS PPO

There's a saying that goes a healthy person has a thousand wishes; a sick person only has one. I sure believe that because every time I've been sick or had to recover from surgery, the only thing I want is to get better. It's easy to take our health for granted when we don't have ailments.

But things can pop up when you least expect, and with the way healthcare costs are going in the US, not having health insurance is like a bankruptcy sentence.

Heck, I got hit with a $3532 surprise ambulance bill even with solid PPO insurance. Thankfully, I learned how to resolve the surprise bill but boy is our EMS system in serious trouble.

At the end of the day, pick a health insurance plan that helps you sleep easier at night. Take into account your current health, medical history, family medical history, dependents, and network of providers.

You'll also want to look at your estimated costs for the premiums, deductibles, copays, coinsurance, specialized care, prescriptions, diagnostics, treatments, and surgeries. The more years you can calculate such costs, the more clearer picture you will have.

And beyond cost, take into consideration how important flexibility is to you. Out-of-network coverage, specialists, and a reliable PCP are all considerations.

There are hundreds of different health insurance plans and each one has its own unique terms. But now that you've got a solid grasp on the fundamentals of health insurance, you're ready to dig into the details and find a plan that fits your needs.

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If you have debt and/or dependents, it's important to get life insurance to protect your loved ones. I recommend getting free quotes with PolicyGenius, the #1 life insurance marketplace today.

With PolicyGenius, I was able to double my life insurance coverage to $1 million and pay less. For the longest time, we had mismatch life insurance coverage, which made no sense. PolicyGenius provides you real quotes all in one place so you can get the best price possible.

Readers, what type of health insurance plan do you have and why? Which type of health insurance plan do you think is most worth it for a single individual and a family? Have you properly invested in health insurance stocks to hedge against every-increasing health insurance premiums?

Related: Lock In A Life Insurance Plan Before Seeing The Doctor

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6 thoughts on “HMO, EPO, POS, & PPO Health Insurance Basics”

  1. I have had an HDHP for years and have been healthy except for breaking a couple of bones where I quickly met the deductible. But when I take into consideration the tax savings by contributing the maximum amount each year, I find my overall out of pocket costs to be less.

  2. Great article and great timing open enrollment is fast and furious right now. Working for a insurance company lots of friends and family reach out to me for advice. My recommendation for most people is a HSA plan. HSA plans work great for 2 types of people the really healthy and the really sick. The ones in the middle are difficult. HSA can be difficult when you have to make the huge outlay of money in the beginning of the year to cover medical expenses, but if you have the deductible match the out of pocket max then you are done for the year. You can then put money into the HSA account at least the deductible amount which lowers your taxable income. If you are healthy HSA can be a great way to save money tax deferred until you have medical expenses later in life. As you age you will have medical bills!

  3. Thank you so much for providing this overview. I now can understand the ramifications of health insurance much better.
    The single time that I seriously compared employer plans, I found that the most comprehensive (and despised) plan did not have a lifetime allowance of $2M like the other encouraged plan. I realized that one could reach that total easily with a single

    devastating cancer diagnosis. So I changed from my much loved plan to Kaiser, the despised plan. I have been so satisfied with my choice.
    However I did work through your article to make sure that I am still on track.
    I am now 80, in good health, but still aware that that can literally change in a heartbeat. A few years ago, I almost died from a pulmonary embolism. And my beloved daughter did die suddenly from unknown causes.
    I was disappointed that I am only the third person to comment.
    Please ALL Financial Sam/Sammy readers take health insurance seriously. Read, Mark, Learn and Inwardly Digest this article.

  4. Thanks for this post Sam, it nicely summarizes the confusing world of health insurance. Currently I am on a PPO that is HSA eligible through COBRA and will transition to my spouses plan when we get married. Due to the numerous health issues I have had in recent years, I have been grateful for the flexibility my PPO plan has provided through my former employer. Nevertheless, I have had an HMO through Kaiser in the past and I was impressed with their efficiency and various levels of medical service. I think both can be solid options, but for me it has boiled down to what my employers have offered in the past.

  5. My employer has 3 plans with low, middle and high monthly premiums. My health is good and rarely require much beyond an annual physical with labs. I continue to chose the lowest premium plan on the rationale of why pay more premium for services I typically don’t use? Of course, that could all change with an accident and my max out-of-pocket could be hit in a year in a blink of an eye with an accident or illness. I have enough funds to cover the max OOP without issue. And since open enrollment is once a year, I am not committed to a low premium plan beyond this time period. I would chose a a higher premium plan if I was going to use the services for the future years if my medical condition warranted it, but do not see a need for now to pay the premiums. Indeed, max- out-of-pocket is a big expense for some if it were to come up, but for now, I am willing to run the table on the insurance premium casino.

  6. Very helpful table on comparing the different types of health plans. I always found it super confusing. First time I’ve heard of POS and vaguely remember hearing about EPO at some point.

    Good refresher on HSA vs FSA as well. I haven’t had an HSA eligible plan before, but I have used an FSA many times. Filing the claims is a bit of a PITA, but the savings is worth it.

    I gotta submit my open enrollment stuff by next week. Thanks for the reminder! I think I’m gonna stick with my HMO and maybe switch plan types when I’m older if I start running into health issues.

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