Analysis of HMO and PPO Medical Coverage, Essay Example

Executive Summary and Plan

The plan is to evaluate both HMO and PPO medical plans giving advantages and disadvantages to each including cost and accessibility to doctors including specialists, deductibles and payments owed after services. Further the purpose of this research is to thoroughly evaluate both plans in order for my business to decide which option will be offered to employees. My target audience is the employees’ of my company. Emphasis will be shown that for benefits of my business and all employees’ a HMO Plan will be recommended. I will also give reference to the proper way to implement a PPO or HMO plan for your business with the concerns of the business and employees in mind with respect to cost and efficiency.

Define the Advantages and Disadvantages

An HMO, or Health Maintenance Organization, is a type of group health insurance plan. The medical needs of the people who subscribe are provided by a managed system of medical care. It provides its service for these needs through a group of doctors, medical personnel and facilities that work directly for the HMO. The care of its patients is done at its clinics by its doctors. Each patient is required to pick a primary care physician who will then direct his/her medical needs through one of the system’s clinics. So, it is necessary for the insured members to live or work in close proximity to the clinics or medical facilities.

Advantages of a HMO

The advantage of this form of medical care includes slightly lower annual premiums, because the cost of care is spread out among the members. In addition, there is little paperwork dealing with insurance forms for the patients. And there is an influence of prevention at an HMO, whereby programs are provided to its members which promote healthier life choices and better health.

Disadvantages of HMO Plans
The disadvantages include fewer choices for medical care outside of the HMO, since referrals to specialists are sometimes limited. If a specialist is needed for an unusual medical condition, the person may want to see someone outside of the system and there will also be a greater cost. The requirement to pick a primary care physician at the HMO may seem inflexible to many also. For people requiring mostly routine care, people who have no unusual medical needs requiring out-of-network specialists, and people who like their medical care in an organized way, an HMO is excellent.
Participating Provider Option

If an employee chooses doctors and hospitals within the PPO network the plan will pay 90 % of the total costs. It should be noted that there is a limited number of doctors and hospitals to choose from.  There is a cap put on service costs through ‘usual and customary charges’ and if a patients needs exceed this usual and customary charge they will be responsible for the entire balance. The excess amount will not be applied toward a patient’s deductible. In network is usually $150 per person and $300 per person for out of network coverage.

Advantages of PPO

One major advantage of the PPO is that you can use a doctor out of the network and still receive some coverage under the plan benefits. There is a very small co-payment associated with doctor visits under the PPO plan. Although you have to choose a primary care physician, you do not have to report to him for a referral. If you plan on moving residence you may benefit from a PPO plan.

Disadvantages of PPO Plans

The PPO costs more to the business owner and employee because of the diversity it offers in choosing doctors and without referral. The associated costs for out of network coverage vary and the plan will not cover these expenses. There is a deductible that has to be met under the plan and the out of pocket expenses are much higher with regards to the required co-insurance that has to be paid after the deductible is met.

Literature Review of Both Plans

Research shows that since the implementation of the HMO Act in 1973 has helped lower the costs to consumers and providers through the use of incentives. The enrolment of HMP participants have increased from 2001 to present from 4.8% to 23.7%. “Analyses on expenditure performance are mostly carried out on the performance of the Medicaid or Medicare managed care plans.” (Buchanan et al. 1996; Mello et al. 2002). Though HMO plans lower the costs of health care many patients have reported lower level of service and less access to physicians and hospitals. “Quality of care is not uniform in all geographic areas.”  (Miller & Luft, 2001). Further research has shown that 1:5 state claims have been denied which is 20% of claims. Pennsylvania State University conducted a study to determine if HMO plans were clinically improving. Only those plans that showed more than average improvement were reported for the purposes of this study. “The HEDIS data is linked with Metropolitan Statistical Area (MSA) data from Interstudy, for each of the corresponding years, to capture the market characteristics of the health plans in the sample.” (Bost, McLaughlin, 2002).

In contrast the STRAP-PPO project looks at “What are effective approaches to manage different types of programs successfully in different organizational environments?” (“STRAPP- PPO Project”). A questionnaire was submitted to small and medium scale corporations with hopes to gain input of program initiation and boundary management and coordination and control of programs. This study will last from 2004-2008 and the costs will be approximately 1,200,000 Euros. The results will be displayed in 2009.

Research shows that HMO plans are best preserved in urban areas where there is much access to doctors and hospitals. PPO’s flourish in any area because they are less restrictive.

Problems and Solutions to Implementing a Plan

It is most important to find out what your employees expect to receive from their health care coverage and what is important to them as far as geographic location, co-pays, out of pocket expenses, specialists etc. The business is responsible for researching the PPO or HMO carrier to ensure they are reputable in the sense they pay their claims in a timely fashion. Decide is administering the plan will take a tooth out of your mouth-meaning lower costs premiums sometimes mean poor service. You should note the amount of in net work carriers because without a sufficient number of these, employees will be forced to see doctors out of the network and pay extreme and unnecessary fees. Look into if your employees will have to fill out relentless forms to get reimbursed for any out of pocket medical costs, if any. Often one carrier or plan seems appropriate at a certain time but may not meet the needs of persons with pre-existing conditions or other factors. Consult a broker if you have any questions or are unsure.

Arguments for the use of HMO Medical Plans with Case Law

There has been discussion to the advantages and disadvantages of both plans especially emphasizing two major points that HMO plans offer cheaper access to medical insurance and PPO medical plans offer a larger variety of doctors to choose from but have the worry of out of pocket expenses if a doctor is not in the network plan. Under the Employee Retirement Security Act 1974 it was argued in Pegram v. Herdrich, No. 98-1949 [2000] that under the plan an employer has a ‘fiduciary duty’ to act in the best interests of the plan participants and beneficiaries. Cynthia Herdrich went to the doctor for an appendix problem and the testing was put off until later. She suffered damage as a result and sued the HMO. She won the malpractice claim but lost the fiduciary claim because she failed to show that the provider of the HMO ‘was a fiduciary to the plan’. The U.S. Supreme court reversed the decision in her favour. The reason I state this case as an advantage to having an HMO is that the patient’s rights are solely protected under legislation and case law. “Carter Phillips, arguing in the Supreme Court on behalf of the HMO administrators, said this case will influence the future of managed care.” (“High Court Hears Arguments on HMO’s Fiduciary Role”).

Further in Rush Prudential HMO, Inc. v Moran, a customer of an HMO brought suit stating that her improper processing of a claim for benefits under an ERISA Regulated program. Illinois law is pre-empted because if a higher court disagrees with the lower courts order the higher law takes over.  This pre-emption of lower courts helps to ensure that if a claim is taken to a lower court and the patient is dissatisfied with a claim or why a claim was denied they can take it to a higher court where higher court law will apply. ERISA Regulations is the law used in the higher courts.

Court of Kentucky has heard arguments on Ky. HMO Law. On January 14, 2003 an attorney for the group of HMO providers asked the courts to strike down state laws that give the patients power to choose their own doctors. Currently state laws protect the patient’s rights to choose their own doctor as long as they are willing to be in the network, not taking into consideration if the HMO plan choose the doctor or not. Thus far, patients are still able to choose the doctors they wish to attend as song as they are in the HMO plan and meet requirements to the plan.

Methodology of HMO and PPO Plans

“The purpose of this experiment was to test for the presence of service-level selection against MH care in the pattern of choice of Medicare managed care plans. Using an individual choice model, we assume that an individual’s utility is affected by the benefit expected from the plan once she/he is sick, personal preferences and needs, and cost of joining a plan. Empirically, we employ a random effect logit model, where the dependent variable is a dummy indicating if the individual is enrolled in a managed care plan, versus a traditional fee-for-service plan. Data from Medicare Current Beneficiary Survey (MCBS, 1996-2001) are used. Research finds that people with higher previous expenditure in MH services are less likely to enroll in a Medicare HMO plan, even after controlling for health status. The results imply that MH services may be underprovided by Medicare HMO’s, compared to physical health care services. In order to ensure sufficient MH care to the elderly people, service-level risk adjustment should be adopted in the Medicare payment policy to offset the HMO’s incentive to select against people with higher MH risk.” (Cao & McGuire, 2006, 2009).

Findings

There is recent state and higher law to protect patients and their beneficiaries if they feel their rights under the HMO plan have been violated or infringed by the provider of the HMO plan. Pre-emption exists if a lower court rules against administering benefits under the plan hence the US higher court laws prevail. Research further shows that 1:5 claims or 20% of claims are denied initially HMO providers leaving doctors to have to ‘forge the charts’ simply to have a person’s operation paid.

References

Do HMO plans reduce health care expenditure in the private industry? (2009) Retrieved October 10, 2009 from, http://www.accessmylibrary.com/article-1G1-171399953/do-hmo-plans-reduce.html

Miller, H and Luft, H (2001) HMO Plan Performance Update:  An Analysis if the Literature, 1997-2001 Retrieved October 10, 2009 from, http://content.healthaffairs.org/cgi/content/abstract/21/4/63

Bost, S. and McLaughlin, J. (2002) HMO Clinical Performance: Which Plans Are Improving? Retrieved October 10, 2009 from, http://gateway.nlm.nih.gov/MeetingAbstracts/ma?f=102273859.html

STRAP-PPO Project Research (2008) Retrieved October 10, 2009 from, http://pb.tkk.fi/STRAP-PPO.htm

High Court Hears Arguments on HMO’s Fiduciary Role Retrieved October 10, 2009 from, http://www.thefreelibrary.com/High+Court+hears+arguments+on+HMO’s+fiduciary+role.-a061856671

Cao, C. and McGuire, T. 2006-2009). HMO Selection Incentives and Under provision of Mental Health Care Retrieved October 11, 2009 from, http://www.allacademic.com/meta/p_mla_apa_research_citation/0/9/3/4/2/p93421_index.html