The Difference Between POS & HMO Health Insurance

by Rod Howell ; Updated July 27, 2017

A POS (Point of Service) and a HMO (Health Maintenance Organization) are two of the three managed health care plans available in the United States, with a PPO (Preferred Provider Organization) being the other. Managed health care plans operate under the philosophy of providing quality health care to their members while keeping costs low. The POS and HMO plans are similar in terms of options and benefits; however, there are notable differences that separate these two health plans.

History

The first documented type of managed health care occurred back in 1917 when a clinic in Tacoma, Washington, provided prepaid medical services to workers in the lumber industry. In 1929, Blue Cross was introduced by Dr. Justin Ford Kimball at Baylor Hospital in Texas as he established The Baylor Plan. In 1939, Blue Shield was unveiled to participate in the prepaid physician plans. Over the years, the programs expanded, and more people were covered under Blue Cross and Blue Shields plans. In 1949, 81 Blue Cross hospital plans and 44 Blue Shield medical plans covered 24 million Americans. It jumped up to 92 million 10 years later (50 million for Blue Cross, 42 million for Blue Shield). In 1973, Richard Nixon signed into law the HMO Act that authorized the use of federal funds to promote HMO plans in America. PPOs were enacted by the California congress in 1982. By 2006, 176 million Americans were covered by a managed health care plan.

HMO Plan

The HMO plan is the most restrictive plan of the three managed health care plans. A member of this plan is required to choose a primary care physician (PCP) from a network of contracted doctors from his geographical area. The PCP acts as a gatekeeper and coordinates the member’s medical care. In return, the insured receives low, out-of-pocket costs when he visits his PCP for medical care by paying a small co-pay amount and no deductible. If the insured needs to see a specialist in or out of the network, the PCP will be able to minimize the costs by approving the visit with a referral.

POS Plan

The POS plan is a hybrid of the other two managed health care plans. Like a HMO, a member of a POS plan is assigned to a network of physicians to pick out a PCP who would oversee her health care decisions. However, the POS is also like the PPO plan, the most flexible, albeit expensive, managed health care plan available, as they wouldn’t need a referral to see another doctor in or out of network. The members will pay higher out-of-pocket costs such as a deductible and a larger co-pay amount if they don’t use a PCP for medical visits and seek care in the network. If they decide to see a non-network physician, their co-pay and deductible amounts will be substantially higher.

Differences

The notable differences between the two plans are that a POS provides the option of receiving HMO or POS benefits, while the HMO operates under its strict guidelines. POS members aren’t required to choose a PCP unlike a member of a HMO plan. Managed health care plans pay higher insurance benefits if their members stay in network. As a result, members of both plans seeking non-network care without a referral will face higher out-of-pocket costs. In fact, an HMO member will be responsible for the entire bill if he doesn’t have a referral, and an insured under a POS plan may have to pay coinsurance on top of an elevated co-pay and deductible amounts if he can’t provide one either.

Warning

The differences between POS and HMO plans can be important factors when it comes to choosing your health coverage. You will lose most of your freedom under the HMO plan in exchange for having your costs minimized by your PCP medical recommendations. The ability to choose who you want to see for your health care needs is allowed under a POS plan; however, the member will have to pay a higher price for that flexibility. Depending on the procedure and the physician rates, the expenses that will come out of pocket may be more than what you prepared for.

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