What do HMO, PPO, HRA, and HSA mean?

For many companies, this is the time of year when you start evaluating health plans, looking to pick the best one for your needs. Do you know what those plan names really mean? Let's take a look at the highlights, so you can get the most out of the health plan you choose.

HMO (Health Maintenance Organization)

With this health plan, employees choose a primary care doctor from your plan's network. He or she directs their medical care and provides referrals when they need to see a specialist, like a dermatologist. With an HMO, employees must go for medical care within your plan's network - or they won't be covered (except for emergencies). They normally pay a copay at the time of service, which is a fixed dollar amount, like $25.

Why they might like a HMO: They work with a doctor who knows their health best, and they can better predict costs.

PPO (Preferred Provider Organization)

With this health plan, employees can visit any doctor - in the network or out. There are no referrals and they don't have to pick a primary doctor (although they may want to). When it comes to costs, a PPO is unlike an HMO: they don't pay a fixed amount but instead pay a percent of the bill, called coinsurance. For example, they pay 20% and your health plan pays 80%. If they go out of network for care they will likely pay more.

Why they might like a PPO: they have the flexibility to visit any doctor without any referrals, ever.

HRA (Health Reimbursement Arrangement)

This is a fund that works with a health plan, like an HMO or PPO. The employer sets up and pays into the fund and employees can use it to pay for deductibles, co-pays, and many other health care costs they normally pay out of pocket. The fund rolls over from year to year, as long as the employee remains in the plan. But if they change plans or leave your company, they can't take the fund -- the monies remain with the employer.

Why they might like an HRA: The funds pay out of pocket costs and most or all their preventive care is covered.

HSA (Health Savings Account)

This is an account paired with a with a high-deductible health plan and the premium employees pay is usually lower than with other plans. Employees contribute pre-tax money into this account and the employer can pay into the account as well. Then, employees spend the account to pay for eligible health costs today - or save it for health costs later. Their money builds interest and since an HSA is theirs to keep, they take it with them if they change jobs or health plans.

Why they might like an HSA: They pay no taxes on money they add into the account or on money they use to pay for qualified health care costs. The biggest benefit is that they can let the account grow year after year - and it goes where they do.

So, before you sign up for a health plan this year, look at all your options. And make a choice based on what works best for you.

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Lisa Mc Sherry

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(206) 406-7256


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