HMO? PPO? What health plan should I choose?

Q: I get health insurance through my employer. What type do I need?

A: The first thing you need to know is what type of health plan is best for you. There are four distinct choices, though the lines between them have started to blur.

Health Maintenance Organization (HMOs). These restrict you to using a certain network of physicians in order to qualify for reimbursement. When you use one of these doctors, you are charged a "co-payment," usually in the $10-to-$20 range, for your appointment.

HMOs With Point-of-Service (POS) Options. If you see a doctor in the HMO network, you'll pay only the co-payment. But these plans also give you the opportunity to see anyone you like. Do that, and you're typically charged as if this were a traditional health plan; you may pay 30 percent of the bill and your insurer 70 percent after you satisfy the annual deductible.

Preferred Provider Organizations (PPOs). These offer you a large network of doctors at discounted rates; you don't need referrals to see specialists who are part of a network.

Traditional Indemnity (Fee-for-Service) Plans. If you're in a fee-for-service plan, you can see any doctor you choose. You typically pay 20 percent of the bill and your insurer 80 percent after you satisfy an annual deductible.

Choosing among these plans is a matter of figuring out how sensitive you are to choice and price.

• If you only rarely go to the doctor, and saving money is more important to you than being able to choose a particular physician, then a straight HMO may be a good fit because it will cost you the least over the course of a year.
• If you're willing to pay a little more for a bit more choice in doctors, then either a PPO or an HMO that has a point-of-service option is the better bet.
• And if you absolutely, positively are not giving up that wonderful physician who refuses to join the HMO bandwagon, then the traditional plan will suit you best, despite the higher cost.

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In the real world, of course, you probably won't be offered all four types of plans, but you'll want to make your decision the same way. The more choice you're willing to pay for, the less you want a plain, vanilla HMO.

Jean Chatzky’s Bottom Line
Prepping for a mortgage
One of the first steps in buying a home is nailing down your budget. Sounds simple, but calculating the figures may not be as easy as you'd think, since the budget hinges on more than just your cash flow. You also need to consider additional factors, like your tax bracket and mortgage rates.

Only on TODAY.MSNBc.com! Financial editor Jean Chatzky answers your questions about personal finance. LAST WEEK: Attention shoppers: Better service on aisle five GO TO ALL MONEY MONDAY COLUMNS

One good way to establish your home-buying budget — and make yourself attractive to sellers at the same time — is to get pre-approved for a mortgage. But be aware that being pre-qualified and pre-approved are not the same thing. The difference?

Pre-qualified: Being pre-qualified is based on your word about your finances. It's also free.

Pre-approved: Getting pre-approved requires a detailed investigation into your financial history. It involves a commitment to loan you a certain amount of money subject to a sales contract and an appraisal.

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2004. For more information, go to her Web site, www.JeanChatzky.com.

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