By Networks and Flexibility in Choosing Providers

Before a consumer can use health care, he or she must decide from which providers to seek care.

Some insurance plans do not provide financial incentives to influence the consumer’s choice in

any way. Other plans tie the provider that the consumer uses to the level of cost sharing the

consumer faces. In particular, some consumers may want to use providers in their health plan

network. A network is a group of providers that have agreed to provide health care under

specified terms to those consumers who have signed up for a particular insurance plan.

Many health plans decrease the consumer’s cost-sharing obligations if they use in-network providers. It is thought that the health insurers can negotiate lower prices with their in-network providers. This

is because the in-network providers are willing to accept lower prices because their pool of

potential patients increases as the providers join the network. The in-network consumers then face

lower cost sharing if they stay in-network. In contrast, in some cases, the consumer will owe

100% of the provider’s bill for an out-of-network visit.

Several broad categories of health plan types and their associated networks exist. The following plan descriptions are generalizations. Health plan rules may differ from what is indicated; for example, a plan that usually does not cover health care received out-of-network often does cover such care when the only provider qualified to perform the care is out-of-network.

• Indemnity insurance allows the insured consumer to decide when and from whom to seek health care. There is no network of providers; a consumer may see any service provider and owe the level of cost sharing specified by the insurance plan. The consumer’s indemnity insurance plan typically has some combination of higher premiums and greater cost sharing (relative to the other insurance plan types) as a way for the consumer to pay for the flexibility of provider choice and the relative inability for the insurer to control costs.
•  Health maintenance organizations (HMOs) usually require that consumers see innetwork 
• providers to face the lowest cost-sharing levels for their OOP expense or covered services. The consumer picks (or is assigned) a primary care provider when he or she joins the HMO.25 Visits to specialists often require referrals (e.g., permission) from the consumer’s primary care providers in order for the insurer to cover the visits. Network size varies across HMOs, as do the rules covering when the insured may go outside the network and receive coverage for medical services. Preferred provider organizations (PPOs) offer intermediate amounts of consumer  flexibility in provider choice to be eligible for full coverage. PPOs are associated   with a given network. PPOs permit the insured to choose their own primary care   providers and to visit specialists without a referral. Most PPOs will cover health   care supplied out-of-network, but the cost sharing faced by the consumer will be  higher than it would have been if the insured remained in-network