How Do Medicare Advantage Plans Work?

Each Medicare Advantage Plan operates and functions a little bit differently. Private companies run these plans and each has its own set of rules and organizational structure. The plans are roughly divided into the following types:

  • HMO Plans, stands for Health Maintenance Organization Plans.
  • PPO Plans, stands for Preferred Provider Organization Plans.

All Advantage plans use what is called a Preferred Provider Network. Unlike Original Medicare where you can see most doctors and providers, when you use an Advantage Plan you will usually use the preferred providers. Generally speaking only in emergency situations are you able to use out-of-network providers without incurring additional costs. The two most common types of Advantage Plans are HMOs and PPOs.

HMO's have stricter rules about who you can see and when and they are generally cheaper than PPOs. However, PPOs function on the same premise of the provider network. You can but probably wont want to incur the additional costs of seeing a doctor outside of the provider network. To choose between an Advantage HMO and a PPO Plan here are two good questions to ask yourself:

  • How good am I at following rules? HMOs have strict rules that you must adhere to.
  • Second, ask yourself if you are likely to use the PPO option to see a non-network provider. What are the PPO savings vs. paying the provider directly?

The largest difference in the way an HMO functions compared to a PPO is that in an HMO you will have a Primary Care Physician who then refers you to specialists for additional treatment. In a PPO you can generally go directly to the specialist without a referral from your primary doctor for medically necessary treatment. Having a Primary Care Physician acting as a gatekeeper to specialists has both positive and negative aspects. If you KNOW you have to see a podiatrist going through the primary doctor can be a hassle. On the other hand if you go to see your primary care doctor and he/she notices something strange this extra visit just to get to the podiatrist might save your life.

Auntie Lou says, "I always think of HMO as standing for: Help Me Or else! This is a tactic you might need to use with a stingy primary care doctor. "

The value of a PPO plan usually comes when you have a rare illness or accident that requires very specialized care. For example, if you break your hand you may want to see a particular hand specialist to do the surgery other than the surgeon within the provider network. If you belong to an HMO and this doctor is outside of the network you will have to pay the entire costs associated with using this doctor yourself. However, if you have a PPO some portion of the costs for this outside doctor will usually be covered.

In summary, Medicare HMOs and PPOs work just like HMOs and PPOs outside of Medicare. HMOs are generally cheaper and have more extensive rules than PPOs. PPOs have greater flexibility but are often more expensive.