Saving Money on Employee Benefits: PPOs
In this article I’ll continue talking about saving money on employee benefits, focusing on medical insurance. I’ll decode the industry jargon and provide insider tips to help you make the most of your benefits.
Medical Insurance: PPOs, HMOs, and ACOs (Oh My!)
The overwhelming majority of people getting medical insurance from their employers are offered a couple of different types of plans, a “PPO” or an “HMO”, sometimes both. There’s also a new type of plan being offered called an “ACO”, but it is currently less common. So, what are PPOs, HMOs, and ACOs? To keep the size of the articles reasonable, I’ll publish an article on each type. I’ll provide tips for saving money on each one.
Preferred Provider Organizations Decoded
The name “Preferred Provider Organization” (PPO) is used because of how the network of physicians, hospitals, and facilities are defined. If you use the services within their “preferred” network, your costs are lower. You are free to use services outside the network, but your costs will be (usually) much higher. More on this preferred network below.
PPOs are the backbone of the health insurance industry these days. It’s what most of my clients are offering, and a lot of clients offer more than one to provide employees choices on which option is best for them.
A Quick Mention of High Deductible Health Plans
For the purposes of this article, I include High Deductible Health Plans (HDHP) in the PPO category. HDHPs have all of the features of PPOs except that copays (if present at all) are applied in a different manner and deductibles are much higher. I’ll talk about HDHPs specifically in a future article because they are becoming more common. But, for now, this discussion of PPOs is applicable to HDHPs except where I note a difference.
The deductible is the amount of expenses you have to meet for the year before the insurance company starts paying its part. You may only have to meet the deductible for higher priced services like inpatient hospital stays, but it could be that you have to meet the deductible for all services (usually the case on HDHPs). Depending on your expenses and your medical plan, you may meet the deductible a little at a time through the year through prescriptions and occasional doctor visits. Or, it could be in the form of a single expensive event like a hospital stay.
In my experience, people get the most confused about the deductibles on PPOs because they are complicated. Employers don’t always do the best job explaining it to the employees.
Jenny’s Insider Tips on Deductibles (VERY IMPORTANT)
There is some terminology that I really need to decode for you and your employer will probably not even know what it means, but it is critical in saving money on employee benefits!
All medical plans show what the single deductible and family deductible are ($1,000 single deductible/$2,000 family deductible, as an example). But it is more complicated than that because your deductible will either be a “non-embedded” or “embedded” deductible.
If the deductible is non-embedded and you’re a family, then you have to meet the full $2,000 deductible before the plan starts paying, even if it’s just one person in the family who has all the expenses.
If your deductible is embedded, they’ll “cap” the first family person to reach the single deductible amount of $1,000 (example above). At that point, the plan will start picking up the costs other than coinsurance for that person until they hit the single OOP max. Other family members will accumulate expenses towards the other $1,000 deductible that’s left until the full family deductible has been met.
Let’s use an example to show the difference.
John and Jane are friends and they each work for different companies and have different medical plans. Both have families. They each chose “self and family” PPO medical plans.
John’s plan has a non-embedded deductible and Jane’s plan has an embedded deductible. Both of their plans have $1,000 single / $2,000 family deductibles.
John’s son plays football and unfortunately he suffered an injury at practice that required extensive care. The total cost of that care for John’s son was $1,800. Because John’s plan is non-embedded, the $1,800 did not exceed the $2,000 family deductible for his plan. So, John had to pay all of the $1,800.
Jane’s husband required minor surgery that cost $1,800. Remember that Jane’s deductible is embedded. So, once her husband’s expenses exceeded $1000, the insurance company “capped” her husband at $1000 and paid 80% (Jane’s coinsurance is 20%, see “coinsurance” below) of the $800 above $1,000. 80% of $800 was $640, leaving Jane and her husband to pay the remaining $160. So Jane’s total expense for her husband’s surgery was $1,000+$160=$1,160.
You can see from the example that having an embedded deductible can save families money by that concept of a “cap” when one person’s expenses exceed the limit specified ($1,000 in our example). Both families had a $2,000 deductible, but because Jane’s plan had the $1,000 single embedded deductible, her out of pocket costs were lower.
You may know in advance that one person in your family typically has lots more medical expenses than anyone else. If so, a plan with an embedded deductible will likely save you money.
If your family medical expenses tend to be spread out among all persons, then an embedded deductible may not be as much of a benefit. Therefore, paying extra for a plan with an embedded deductible in this case is probably not a good use of your money.
Medical plans with embedded deductibles will usually be more expensive than plans with non-embedded deductibles, but they can save you more money than the difference in premium cost, so make sure you understand this before choosing a plan!
Not all medical plan summaries given out by employers explain this. If you don’t see it explained, first ask your HR person which type of deductible the plans have. If they do not know (and some will not know), ask to talk directly to the insurance company to get your question answered. It’s that important!
The out of pocket (OOP) maximum is the most money you would have to pay for the year before the insurance company starts paying 100% of the expenses. It is the sum of your deductible, copays, and coinsurance. For most plans, this includes medical and prescription services. But of course it can’t be that simple for everyone. Some employers are implementing a separate prescription OOP maximum. This means you could have one OOP maximum for medical expenses and another one for prescriptions. The benefits summary given to you by your employer should tell you what your OOP maximum(s) include. This will also usually be stated in single/family dollar amounts, such as $2,000 single and $4,000 family.
Jenny’s Insider Tips on Out of Pocket Maximum
If your employer offers you several plans, look for differences in the OOP maximums between them. The lower the OOP, typically the higher the cost of your share of the premium (the part you pay out of each paycheck). The plan may have other features that make it attractive, but OOP maximum is one thing that people often overlook when considering which plan to choose. A plan with a very high OOP maximum may seem inexpensive on premium, but if you have lots of claims for the year, you could be left paying big bills before the insurance company starts paying 100% of your expenses.
Coinsurance is the amount the insurance company will pay once you’ve met your deductible. Usually the insurance company will pay 100%, 90%, or 80% and you will pay the opposite 0%, 10% or 20%. Once you hit the OOP max then you will stop paying coinsurance for the remainder of the year. Coinsurance shows up in the benefit summary given to you by your employer with a %.
Jenny’s Insider Tips on Coinsurance
I’ve seen coinsurance really trip people up, so let’s use an example to decode it. First, remember that you’ll only be paying coinsurance until you reach the OOP max. But once you’ve met your deductible and you’re in the coinsurance phase, please remember that you’re only paying your coinsurance amount for each service you receive. For example, if your coinsurance is 20%, and you receive a service that costs $1,000, then your portion is $200. It is that $200 that counts against your OOP max, NOT the $1,000. So, while you saved $800, the rate at which you get to the OOP max slows down once you start paying coinsurance. This can often take longer than you think.
Copays (copayments) are the flat amounts, usually for services like office visits, prescriptions, urgent care and sometimes emergency room visits. Your copays (if any) will show up on a benefit summary with a $.
Jenny’s Insider Tips on Copays
While still found in some PPOs, copays are becoming less common. This is causing a cash flow issue for doctor’s offices because that bill needs to be sent off to your insurance company to be processed, and you need to receive your Explanation of Benefits (EOB) before you know exactly what to pay.
Some providers (usually “Family” or Primary Care doctors) will ask you to make a copay at time of service. They may do that even if there’s not an insurance plan required copay for that service. Their thinking is, since your visit will end up costing you at least $75, they’ll just ask for $50 or something similar. That gets them at least a portion of their payment earlier than if they wait for all the insurance processing.
If you know you have not met your deductible and you don’t mind paying some of the bill up front, go ahead and pay. They will credit your account for that amount. But, don’t hesitate to push back and tell them you want to wait until you receive your EOB. Jeff and I have never had a problem declining to pay up front with our doctors. Most of the employees I have worked with have not had a problem, either.
If you do pay and it turns out you don’t owe anything or a portion of what you paid, getting a refund can be an issue. The doctor’s offices usually just credit your account and it can be a hassle to get them to send you a check.
My advice here is pretty clear – do not pay any copays you are not required to pay unless the provider refuses service unless you do.
The “network”, also called the “preferred provider network” are the doctors, hospitals, pharmacies, etc. that provide care at discounted rates to subscribers (you) of the insurance plan. The insurance company has negotiated these rates with all of the providers and as long as you get your care within the network, you benefit from these reduced rates. The providers benefit because they get patients “pushed” to them by the insurance company. That is less money they have to spend on advertising or marketing their services.
If you seek care outside the network, your costs will likely be higher. That’s because that provider has not agreed to the contracted rates and they can charge you whatever they want. Furthermore, the costs you do incur will not count towards satisfying your deductible. Or, if there is an out of network deductible, it is much higher than your in-network deductible. Out of network charges also may not count towards your OOP maximum. That means there could be no limit to what you are responsible to pay.
Let’s illustrate this with an example of an employee who needs an expensive medical procedure. In this case, we’ll say Derek needs a hip replacement. Derek has a self-only PPO. For in-network services, his deductible is $1000, his coinsurance is 20% and OOP max is $2000.
If Derek uses his preferred provider network:
- He gets his hip replaced and the provider’s contract with the insurance company says they’ll accept $10,000 for that service.
- Of that $10,000, Derek will pay $2,000 total ($1,000 + 20% of $9,000 capped at the OOP max of $2,000).
- The insurance company will pay the remaining $8,000. The doctor/hospital is not allowed to bill Derek for any more than that.
If Derek uses an out of network provider:
- He still gets his hip replaced, but the insurance company has no contract with that provider. The provider charges $20,000 for the procedure.
- The insurance company will only allow a charge for $10,000, the same amount contracted with their preferred network.
- Because the procedure was done out of network, Derek has a much higher deductible of $2,000 rather than $1,000 for in-network. Also, his coinsurance is 40% instead of 20% and his OOP max is a whopping $4,000. Now let’s add up what Derek will owe. (Hint: It won’t be pretty)
- Derek will first pay up to his $2,000 deductible, then he’s responsible for 40% of the remaining $18,000 capped at his OOP max of $4,000, so that’s $4000 so far. That’s his obligation as far as his insurance company is concerned. At this point, the insurance company pays the provider $6,000 (remember they only allow the procedure cost of $10,000) and they are done.
- So far Derek owes $4,000, the insurance company paid $6,000 and there’s still $10,000 left of the $20,000 bill. Who pays the remaining $10,000? You guessed it, Derek owes it.
For going out of network, Derek has to pay $14,000 instead of the $2,000 he would have paid in-network. Ouch!
Not all examples are this extreme. But believe me, I have seen many people get into this situation because they did not understand their employee benefits. Don’t be that person!
Jenny’s Insider Tips on PPO Networks
Fortunately, the preferred networks are usually quite large and it is usually not necessary to seek care outside the network. This is one of the big benefits to customers of PPOs – lots of choices for your care inside the preferred network.
My experience is when people get care outside the network, it is because a provider they like is not in the network. They don’t usually do it by necessity. You know, they need a cardiologist and there wasn’t one in the network. That just doesn’t happen very often.
If you just can’t stand the thought of changing providers to one that is in the network, let your provider know this. Ask for a discount on their charges. Any amount will lower your expenses. Also, ask them to consider joining the preferred network. While they are unlikely to join the network from a single patient asking them, they may consider it if multiple patients inquire.
But my most firm and obvious advice here for saving money on your employee benefits is to use the doctors and hospitals in your preferred network!
That’s it for my discussion on PPOs. I hope it has been helpful. I’ll cover the other types of plans in future articles as well as lots of tips and some hacks of how you could be saving money on your employee benefits.
Don’t forget I’d love to hear suggestions for topics on this series.
Current and Upcoming Articles in the Series:
PPOs, Saving Money on Employee Benefits (This Article)
HMOs, Saving Money on Employee Benefits (Coming soon)
ACOs, Saving Money on Employee Benefits (Coming soon)
HDHPs, Saving Money on Employee Benefits (Coming soon)
Spousal Surcharges, Saving Money on Employee Benefits (Coming soon)
Posted by Jenny