The Trouble With PPOs

Preferred Provider Organizations (PPOs) date back to 1980 when the first PPO was organized to provide contracted rate medical care to a health plan. For providing “steerage” toward the medical providers in the PPO network, the providers granted discounted rates for their services to the health plan.

Over the years, PPOs have changed and morphed into multiple variations, but the end result is the same – health plan members are steered toward PPO providers for their medical care and given favorable discounted rates.

The advantage of this type of arrangement is very obvious – it’s price.

As the typical retail price of health care has skyrocketed over the decades, it’s become more and more important for health plans and for insureds to seek care at the most favorable price available. Retail prices charged by hospitals and physicians may be more than double or triple (or even more!) than the discounted rated provided by the PPO network.

With the kind of savings PPOs can provide, why would anyone look at a health plan without a PPO network?

Well, by their setup, PPOs present a lot of challenges to consumers and also come with hidden costs and questions about the true value of the negotiated discount rates.

Take a look at some of the troubles with PPOs:

PPOs aren’t free. PPO networks charge a monthly access fee to insureds for their access to the network. These fees can be anywhere from 1 to 3% of the cost of your monthly insurance bill. As expensive as monthly premiums are, those small percentages can add up quickly.

PPOs are restrictive. Most PPOs have limited panels of providers and facilities that are part of the network. Consumers often are left to search from a limited list of providers who will accept their coverage. The first question for most consumers is usually, “Is my doctor in the network?”

PPOs feature penalties. Most networks require active “steerage” in a health plan. That means you get better benefits for using the PPO providers. However, what it really means is that you get penalized with much worse benefits if you use a provider outside of the PPO networks. In fact, the Affordable Care Act protection of a maximum out-of-pocket cost is LOST if you go out-of-network. Your personal out-of-pocket costs could be unlimited if you don’t stay in network.

PPOs discounts aren’t always discounts. One of the big questions with PPO discounts is, “Are they actually good discounts?  Because of the lack of transparency in medical pricing, it’s almost impossible to tell if you’re getting a good deal. Retail prices from medical providers are difficult to obtain so it’s equally difficult to tell what your price will be. And different PPO networks will have completely different pricing from each other. One network may have a 20% discount, another may have a 60% discount, and another may have negotiated a fixed rate for particular services.

Surprise balance billing. One of the largest problems consumers face is when they are confronted by non-PPO providers while they’re in a PPO hospital. Emergency room physicians, anesthesiologists and radiologists are some of the examples of hospital-based providers who often don’t accept PPO discounts even when you’ve been admitted to a hospital in your network. The result is a “surprise balance bill”, which is when your insurance company won’t pay the full retail bill submitted by the provider and they bill you for the balance.

Are you curious about the alternatives to PPOs?

Without a PPO contracted rate in place, how else can a health plan determine a fair reimbursement for medical care? One answer is through reference-based pricing. Your health plan defines a reference point for payment or defines an actual dollar payment amount for a specific type of service.

The most common reference base in use today is Medicare. Almost all health plan providers deal with Medicare patients. Medicare has a very tightly defined payment scheduled for all allowable medical services. Commercial health plans and insurers have begun to use Medicare as their payment reference within their health plans. Most do this through a “Medicare Plus” model where they pay the provider a percentage ABOVE Medicare allowable – often 50% or more ABOVE Medicare reimbursement.  Plus, they allow you to see any health providers without restrictions. These types of plans often are cheaper than PPO plans and they eliminate all the complications that PPOs add into a health plan.

When looking at your health plan, take a look at new reference-based pricing alternatives to see if they offer you better pricing and a simpler approach to seeking medical care.

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Allied National

Founded in 1970, Allied is one of the nation's oldest and most experienced third-party administrators. Allied National is a 90 Degree Benefits Company, a subsidiary of Blue Cross Blue Shield Alabama. As the small group benefit experts, Allied works with small business employers to provide unique and affordable group health benefits.