There are some things in life that almost feel intentionally confusing. At times, health insurance feels like one of those things. With all its different terms, provisions, rules, and costs, selecting a health insurance plan, enrolling in one, or selecting a plan as part of your organization’s benefits package can get very confusing very quickly. Simultaneously, understanding what all the various associated terms mean, as well as all of the different rules and regulations, is crucial to ensuring the plan you select is best for you in the case of selecting an individual health plan, or is best for each member of your organization in the case of selecting a health plan for your company’s benefits package. This dual threat of confusion and importance can make finding a health insurance plan unnecessarily overwhelming and stressful.
At Payday HCM, we’re very familiar with this feeling. As a benefits administrator, we have plenty of clients asking us questions about not only what health plan would be best for their organization, but also how their current plan works and the kinds of things included in it. One of the more common subjects of questioning when it comes to health insurance plans is in-network and out-of-network providers. There are many different nuances to understanding provider networks—nuances that may not be all that clear upon first glance.
That’s why, in this article, we’ll be going over the differences between in-network providers and out-of-network providers. We’ll start by going over generally what in-network and out-of-network mean before diving deeper into the details of the purpose behind provider networks and the differences in cost between the two. We’ll also briefly cover whether certain plans provide reimbursement for out-of-network costs.
In this article, you will learn:
- What Do ‘In-Network’ and ‘Out-of-Network’ Mean?
- The Purpose of Provider Networks
- Out-of-Network Costs and Provider Networks With Different Plans
What Do ‘In-Network’ and ‘Out-of-Network’ Mean?
To start, we’ll go over what in-network and out-of-network mean and how the two differ from one another.
What Does ‘In-Network’ Mean?
If you have health insurance (which, more than likely, you probably do), then you’ve probably heard the terms “in-network” and “out-of-network.” These terms refer to whether or not a certain provider (that is, a provider of health services, not the insurance provider) is in your insurer’s “network.”
In-network providers are doctors, hospitals, labs, and other health care providers that have entered into a contract with your health insurance provider. Under that contract, the health services provider agrees to accept a negotiated, typically discounted, rate for services. Your insurer then shares costs via copays, coinsurance, or direct payments under that agreement.
What Does ‘Out-of-Network’ Mean?
Out-of-network providers, then, are providers that do not have a contract with your health plan or health insurance provider. Because there’s no prearranged agreement, those providers can bill at their usual rates, and your insurer may limit or decline reimbursement. If your plan has out-of-network benefits, it may cover a portion of the “allowed” charges (which we’ll discuss later).
Generally speaking, when looking for a healthcare provider, it’s likely you’ll be considering more in-network providers rather than out-of-network. In-network providers are typically associated with lower costs of care, as the negotiated cost-sharing payments are typically cheaper than the provider’s usual rate.
The Purpose of Provider Networks
Now that we understand the difference between in-network and out-of-network providers, we can look more closely at the purpose of provider networks.
Why Do Insurance Provider Networks Exist?
Insurance plans build networks so they can negotiate discounts at scale for all of their health plans while helping to set more predictable pricing. The network model benefits insurers, healthcare providers, and those being insured, as it helps keep costs lower while ensuring healthcare providers receive patients and insurance providers make their money back.
From the consumer side, networks are intended to reduce costs and administrative burden, as the insurance provider takes care of a lot of the administration. If you stay in-network, you typically pay less and do less paperwork. Some insurance plans do allow you to visit out-of-network providers while providing some reimbursement, however, but we’ll discuss that later.
Legal Protections for Emergencies & Surprise Billing
Healthcare costs and insurance networks have a lot of different legal protections to help ensure consumers are receiving fair and transparent pricing. Because of consumer protection laws, you often cannot be forced into higher costs when you receive emergency care from an out-of-network hospital. Insurers must treat that as if it were in-network for cost-sharing purposes.
There are also rules under the No Surprises Act, for example, that prevent certain out-of-network charges when you receive care at an in-network facility but from out-of-network clinicians you did not choose. The No Surprises Act also requires providers to provide you with notice of any protections you may have and who to contact if you feel these protections have been violated.
Out-of-Network Costs and Provider Networks With Different Plans
Finally, we’ll go over the effects on the cost of care when opting for out-of-network providers and how those costs might differ with different provider networks.
Do Out-of-Network Providers Cost More?
Yes—almost always. Many health plans impose different deductibles and coinsurance rates for out-of-network services. You might have a separate, higher deductible (or requires you to pay 100% of charges up to that deductible) before the plan contributes anything. Then, after that, your coinsurance share may be higher for out-of-network care.
Some plans simply don’t cover out-of-network care, except in the case of emergencies. In those cases, you may be responsible for 100% of the charges. Even when there is coverage, insurers might limit which services are eligible, or require the services to be “medically necessary” or approved in advance.
HMOs and PPOs: How They Cover (or Don’t Cover) Out-of-Network Costs
Different plan types handle out-of-network care in distinct ways. Health Maintenance Organization (HMO) plans generally require you to choose a primary care physician (PCP) who refers you to specialists within your network. HMOs typically cover only in-network care (for non-emergency services).
A Preferred Provider Organization (PPO) plan, however, offers greater flexibility in terms of in-network and out-of-network providers. You can see in-network providers at a lower cost, or choose out-of-network providers, without a referral, with some coverage. PPO plans may pay a portion of the insurer’s allowed amount for out-of-network services.
Stay In the Know On In-Network Providers
Health insurance is confusing. Between finding a benefits administrator, selecting a plan, enrolling in a plan, and actually submitting a claim and using the plan, there are a whole host of different terms, rules, and procedures that you need to understand to take full advantage of your plan’s benefits. Of course, understanding all of this isn’t easy, and it can make the stress of finding and enrolling in a plan overshadow the actual benefits you might receive from a comprehensive health insurance plan. While understanding provider networks is only a small piece of the health insurance puzzle, the knowledge provided in this article will still help you have a bit more of an understanding of how health insurance plans work.
Understanding the difference between in-network and out-of-network providers can be helpful when considering different plan options. Knowing which providers might be in-network and which ones aren’t can help you select the best plan for your business. It’s also important to understand when considering cost. Outside of this, though, different types of plans will have different costs. Learn more about the pros and cons of level-funded plans to discover if this type of plan is best for your business.
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