Feature, Not Flaw: HMO Plans And Limited Provider Network

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HMO (Health Maintenance Organization) plans are considered to be the most affordable insurance plans on the market, and customers love affordability. Few of us in life would ever encourage insurance companies to hike their premiums and increase costs. So with that said, budgeting is a priority with affordability. And customers never get enough affordability.

However, few understand that this affordable cost brings costs in other ways, too. One of the compromises HMO plans must make concerns the provider network. The provider network consists of doctors who all agree to partner with the insurance company. The partnership means that members can go see this exclusive network of doctors (primary care physicians or PCPs, and specialists such as dermatologists, cardiologists, neurologists, psychologists, podiatrists, etc.) and the plan will cover the lion’s share of the cost.

Of course, HMO plans heavily believe in cost-sharing, which means that members often share the costs by paying either a 1) copay, a fixed dollar amount such as $25, for example, or 2) coinsurance, which is usually a percentage of the cost (20% for high-cost durable medical equipment or DME, for example).

When it comes to the provider network, though, it is smaller than PPOs (Preferred Provider Organizations) because PPOs allow for higher out-of-pocket costs than HMOs. HMOs are designed with affordability in mind. Since HMO plans crave affordability, everything is designed to this end. For example, HMO plans contract with certain doctors such as primary care physicians (PCPs) to keep costs low by paying those PCPs a fixed rate for their services to members each month.

These services are called “capitated services” because they are “capped” at a set price. That is, PCPs in HMO networks received a fixed rate per month per member for an unlimited number of visits. Doesn’t matter if you visit the PCP 1 time or 100 times in one month, the PCP’s capitated service pay is still the same fixed amount.

With HMO plans paying a fixed fee for capitated services, HMO plans are able to save money while still providing access to proper healthcare for their members. But what this means for members is that they will not be able to just go to the hospital down the street because “it’s only 5 minutes away.” Often, exclusive networks limit member options, especially in HMO plans. And this seems to be the crux of member complaints with regard to HMO plans.

hmo price with ppo network

This is what many HMO members want: the cost of an HMO plan but with the extensive, wide-scale nature of a PPO provider network. This is ideal, and in many cases, simply unrealistic. This is a logical impossibility to fulfill in many cases. One of those reasons pertains to providers. If a provider chooses to see a member, that provider can set their own costs for services rendered.

When providers agree to see members in an HMO plan, they can only partner with that HMO as long as they agree to affordable costs. For instance, PCPs in HMO plans can see members but members must agree to a $50 copay or less in many cases. In PPO plans, PCPs (primary care physicians) can see members who give a $100 copay or higher.

Some may like the selection of PPO plans and may not care about the extra or higher copays; and yet, if you’re a 76-year-old retired elderly person who has a lot of ongoing medical conditions and needs weekly medical care from providers, that $100 copay per visit seems awfully high as opposed to that $20 or $10 copay for the primary care physician in an HMO plan.

So with that said, the partnership between primary care physicians and specialists on one hand and the HMO plan on the other allows the HMO plan to achieve a two-in-one: 1) provide doctors for members and 2) keep costs low. HMO plans are designed to provide affordable healthcare, but the exclusive nature of providers means that provider networks in HMO plans are far more limited than in PPO plans.

network gap

While this arrangement works excellently at times, there are times when it does not. For example, let’s say a member or customer needs to see a dermatologist. Let’s say that the member has tried to go online to the provider search to find one, but the search engine says “no results.” Let’s say the member calls the insurance company to find a dermatologist, but again, turns up nothing. At this point, the member has what is known as a network gap with providers (specifically, dermatologists, skin doctors). What to do?

In such a case, HMO plans are often considered to be flawed because of the network gap. According to Medicare (CMS guidelines, Center for Medicare and Medicaid Services) guidelines, members should have access to providers up to a certain distance from home. The maximum distance from home for members is usually nothing over 40 miles. Anything over 40 miles from home the member is required to travel is a network gap. And so, in such a case, what is a member to do?

authorization request for out-of-network provider closer to home

What some members may not know is that, in such circumstances where a network gap exists, members can talk to their primary care physician or doctor about going to an out-of-network provider closer to home than 40 miles away. The doctor can file paperwork to the plan on behalf of the member and express the network gap and how it prevents the member from having adequate access to appropriate and urgent healthcare. This paperwork is called an authorization request (auth request).

Auth requests take some days to process before the insurance company makes a decision, but the decision could work in the member’s favor. Of course, for the member to express urgency over this paperwork, either the plan’s customer service representatives must contact the plan or the member must schedule a visit with the PCP. The PCP is paid for each member for an unlimited number of visits each month, so the PCP should be willing to see members and discuss their medical options.

limited provider network is a feature, not a flaw

It never fails to need to be said: HMO plans value affordability. That affordability factor means that, when an HMO plan enters into agreements with primary care doctors and specialists, it will have a limited network of providers to draw from. The reason? Not every specialist or doctor will agree to a small capitated services fee for the good of helping members.

And so, in a situation where doctors are free to say “no” to an HMO network because of its reduced payments to doctors, what can HMO plans do? They could choose to shut down on the basis that “we cannot provide the best network for members.” On the other hand, they can continue to run but do so with a limited network and fill in network gaps as best they can. What would you want HMO plans to do?

When members say that the “flaw” of HMO plans is their limited provider network, it appears as though they don’t truly understand that the limited network is, by default, built into them. What HMO plan doesn’t want to expand its network? What HMO plan doesn’t want more doctors to agree to its reduced fees for services rendered so that HMO plan can offer a wider network of doctors for members? HMO plans would be all too happy to give their members a burgeoning network. The reason? They’d be able to attract a wider clientele, perhaps winning over PPO members looking to save more money on their insurance premiums.

However, doctors have a choice over what networks they want to join and thus, what members they choose to help. Doctors have a choice over whether or not they want a fixed fee for services (capitated services) or full price for visits. An insurance company cannot make a doctor or specialist join its provider network.

And so, in this situation, what are members to do? I happen to think that many members do not like the limited provider network in HMO plans but are still grateful these plans exist and save them tons of money each month.

After all, beggars can’t be choosers.