Types of FEHB Plans

Plans are of three main types—combined Preferred Provider Organization (PPO) and Fee-for-Service (FFS) plans, High Deductible (HDHP) and Consumer-Driven (CDHP) plans, and Health Maintenance Organization (HMO) plans, some of which have Point-of-Service (POS) benefits outside the plan network. Most of these options are available in both national and local area plans. Historically, PPO-FFS and HMO plans are distinct approaches. The decision as to which type to join involves service delivery as well as financial factors. The preferred provider or PPO approach now central to most Fee-for-Service plans goes part way toward the HMO model by reducing your cost if you restrict yourself to a network of providers. One national plan, the Blue Cross Basic option, is like most PPOs and HMOs in providing no coverage if you use out-of-network providers. The HDHP plans follow the PPO and FFS model of the national plans, even when they are local. Thus, the differences among plan types are blurring.

In national plans—whether PPO/FFS, HDHP, or CDHP—you generally get a much larger selection of preferred providers, national as well as local. In addition, in all national plans except for Blue Cross Basic you can go to virtually any doctor or hospital you choose—provided you are willing to pay much more (often half or more) of the bill. Under this FFS coverage of providers outside the network, you are covered if you choose to use a world-famous facility, such as the Mayo Clinic, even if it is not a preferred provider. This flexibility gives you maximum freedom of choice but imposes higher costs on you. The national plans offering broad PPO networks and out of network coverage usually but not always charge higher premiums than most local HMOs, although the gap has narrowed in recent years. HDHP and CDHP plans also provide this flexibility, usually at lower premiums than traditional plans.

Most HMO plans are quite different. They operate through a relatively limited group or network of physicians who share your fees, regardless of which doctor you use. Our HMO analysis "Should I join a HMO in the FEHB program?" presents their important advantages and disadvantages in detail. Although cost and benefit comparisons are the key considerations in assessing most plans, other factors are important in deciding whether to enroll in an HMO plan and, if so, which one. Most HMOs will not cover you at all outside of their provider network except in emergencies, but some offer fee-for-service coverage for non-network providers, like the national plan (What's a Point of Service FEHB plan?). Others offer non-emergency out of area benefits to students or, in some cases, to your whole family.

HDHP and CDHP present yet another dimension of choice. These plans provide incentives to you to hold costs down by prudent shopping. The plans provide savings accounts, which, if not fully used, roll over their balances so they can be used in future years. In fact, in some of these plans the amount in your savings account at the end of the year will exceed what you paid in premium (after Premium Conversion savings), if your usage is low. However, once the savings account is used up, you face a high deductible before complete health insurance kicks in. Thus, these plans seemingly present more risk than traditional PPO or HMO plans, as explained in "Should I Join a High Deductible Plan in the FEHB program" However, they have significant tax advantages that largely negate their seemingly higher risk, and their catastrophic cost protection is generally as good or better than in other plans.

All FEHB plans impose restraints on provider choice, using networks as a key strategy to reduce payments and hold down premium costs. The only significant exception to this pattern is for retirees with Medicare Parts A and B, who in most national plans and some HMOs can go to almost any hospital or physician at no cost. This flexibility is allowed because Medicare pays first for these enrollees, and the Federal government uses its legal power to force Medicare-participating providers to accept government fee limitations regardless of their actual costs.