What to know about choosing an HMO: faced with a multitude of options, deciding on a plan is more than just dollars -it's sense.

When Kevin Holston of Atlanta tore the tendons on his knee in 1993, he not only needed surgery, but eight weeks of rehabilitative therapy. Holston's company, CIBA Vision, manufacturers of contact lenses, had a self-insured traditional indemnity plan at that time. Although the plan covered 80% of his medical costs, Holston's bill totaled $4,000, including a $900 tab he picked up.

A year later, when his wife Waltina Perry-Holston suspected she might be pregnant, she made an appointment with the Ob-Gyn she'd been seeing since college, Dr. M. Gerald Hood. An economist in the Atlanta office of the U.S. Bureau of Labor Statistics, Mrs. Holston found her doctor while enrolled in her own traditional health insurance plan. Since then, however, both the Holstons and Dr. Hood have joined the ranks of those consumers and providers switching to managed care insurers.

The Holstons' insurer, United Health Care of Georgia, covered all Waltina's pre-natal visits, ultrasound, laboratory tests and hospitalization charges as long as Waltina saw any doctor affiliated with the independent network of physicians in the group. "I paid a $10 co-payment for that first visit to confirm the pregnancy," says Waltina, "but after that, I never paid another co-payment or a bill for the pregnancy or the hospital stay." The total cost of delivering now 15-month-old Darien was $8,000. The cost to the Holstons was only $10.

The Holstons are just one family among the more than 100 million Americans enrolled in managed care plans - the fastest growing form of health insurance in America today. At a time when everyone - employers, insurers and consumers alike - are to limit their out-of-pocket expenses, "managed care," also deemed "managed cost," has become the policy of choice when buying health insurance.

On one hand, this trend has increased the number and variety of health insurance plans available to consumers. On the other, it has spawned limitations in how health care service is rendered. Most Americans, 74%, get their health coverage through their employer. But, as employers look to shrink their health care costs and fewer consumers are willing to art with their eroding income dollars, expect the boom in managed care plans to continue. "Many of my co-workers are choosing their plans based not only on the doctors, but also on the cost of coverage," says Waltina. "Many people yo-yo from one plan to another because their doctor is in several different ones. So they look at the premiums," she adds.

But cost shouldn't be the only factor considered when choosing health insurance. Assessing the needs of our family, the range of benefits offered under each plan, the quality of the plan and its providers, along with the cost, should be the guideposts in making your decision. Here's how to size up your health care options before you need them.

CHOOSING THE RIGHT COVERAGE

In today's health insurance smorgasbord, there are over 1,000 different health plans to choose from. But they can all be categorized into four basic groups: traditional indemnity or fee-for-service plans, preferred provider organizations (PPO), point-of-service plans (POS) or health maintenance organizations (HMO).

The plans, which sound like alphabet soup, are different. Some allow patients access only to health care professionals in that specific plan, while more flexible plans allow patients to see doctors within that plan or pay more and see anyone they want. Sometimes, however, the lines of difference between policies are blurred.

Under traditional fee-for-service plans, patients can choose to see any doctor at anytime and pay them a fee directly for their service and wait to be reimbursed, as Kevin Holston did, usually for 80% of the cost. Because there are no restrictions on this kind of insurance, it is the most costly for employees and employers.

But under managed care, a typical plan offers its members a specific list or "network" of doctors and related associates who have agreed to treat plan members for a fixed rate plus a co-payment fee. In the HMO and POS versions of these plans, members must choose a "primary care physician" through whom all their health care and treatment is channeled. In most instances, plan members must first see their primary care doctor before they can go elsewhere for treatment. The concept is that most medical problems are non-emergency, routine conditions that can be handled by a general practitioner or internist. If a problem needs to be handled by a specialist, the primary care physician determines which specialist to refer the patient to.

Managed care insurance is paid the same way as fee-for-service, usually through payroll deductions. For consumers, there are fewer out-of-pocket costs when using a managed care insurer, usually a small co-payment fee ranging from $5 to $10 per visit. There are no deductibles or insurance claims to file. There are also a certain number of "well visits" that the plan allows each member, depending upon their age. For instance, most adults have one "fee" wellness checkup annually, while babies have several "well baby care" checkups during their first year. Costwise, this plan is the least expensive and often the choice of families or those who have health concerns that need regular monitoring.

In a preferred provider organization or PPO, a doctor or other health care provider contracts with an insurer to provide care at a discounted rate. Members enrolled in a PPO can see any doctor they want as long as they're "in the book," generally for a small co-payment, with 90% to 100% of the cost covered. If, however, you go outside the plan, then you pay just like a fee-for-service insurance and wait to be reimbursed, usually at a rate of 70%. The plus side is that you don't go through a primary care physician first; you can go to anyone you want.

The newest twist on managed health insurance is the point-of-service plan (POS). It takes the independence of traditional indemnity insurance and managed care and combines them under one policy, allowing its members to get care in or out-of-network and with or without a gatekeeper's permission. Although it allows more individual freedom of choice, it costs accordingly - premiums are generally higher than straight HMO plans. If you see in-network providers, the costs are a small co-payment and no deductible. If you go out of network, then you pay like a fee-for-service plan.

"POSs are the best of both worlds, says Dennis Treat, managing consultant on health and welfare for the Washington office of the New York-based consulting firm Foster Higgins. "You get the benefit levels that are most controlling, but not limiting. It's a good alternative for employers," he offers.

A new national survey of employer-sponsored health plans conducted by Foster Higgins attests to the growing popularity of POS plans. In 1992, only 2% of all employers offered POS plans with 5% of employees enrolled in them. By 1994, point-of-service plans were offered by 15% of all employers and accounted for 15% of all employees enrolled in health plans - an almost four-fold increase in only two years and the fastest overall rate of growth among any health plan.

"Ultimately, indemnity plans will go away altogether," predicts Treat. "The individual is not necessarily the best person to decide how serious a condition is."

DOES COST EQUAL

QUALITY OF CARE?

But as health care has shifted from a la carte fee-for-service to prix-fixe managed care, how can consumers make sure they're not getting shortchanged on quality or service?

As an employer of 600 and provider of home health services to thousands, Clara Taylor Reed, CEO of Mid-Delta Home Health Inc., a BE 100s company in Belzoni, Miss., is concerned with the quality issue. Just because a managed care plan is cheaper doesn't mean the quality is there," says Reed. "If the bottom line is the dollar, then I think quality is going to be compromised, she adds.

In January, Mid-delta and its Taylor Medical Clinics began participating in a state-sponsored HMO-Medicaid pilot program to provide service to Medicaid patients who volunteer to enroll in an HMO program in the Mississippi Delta Region. The program and the pilot is a growing trend among states and the Federal government, looking to reduce if not get out of the health insurance business. However, 3% of Mid-Delta's patients are privately insured. "We don't have a bigger market because there aren't many private employers in the Delta," notes Reed.

As an employer, Reed admits that "we're looking for the best coverage for the least amount." That includes reviewing managed care plans as an option.

More employers are taking a proactive approach in evaluating their second largest employee expenditure and asking insurers for an accounting of their practices. In this quest, the National Committee for Quality Assurance (NCQA), a nonprofit voluntary accreditation organization, has emerged to evaluate the quality of care managed care plans offer its members.

"The principle driving force has been that some of the big employers have said to these health plans, you will go through this process," says NCQA spokesperson Barry Scholl. He points to companies such as Ameritech, IBM, Procter & Gamble, PepsiCo and Xerox that now request and/or require health plans to be NCQA accredited as helping the industry to set quality standards and police itself.

The way it works, managed care plans voluntarily submit to an evaluation of a set of criteria to measure quality. A plan is judged in six broad categories covering issues from how effective the plan works to improve its care, service and access to members to physician qualifications to its preventive services. The plans are evaluated by a committee of physicians and business professionals in managed care. After review, a plan can get one of four ratings: full accreditation (good for three years), a one-year accreditation, a provisional accreditation or it can be denied. In a provisional approval there are some quality issues the plan must address within a year to be accredited. If a plan is denied, a list detailing the problem areas is given at the end of the review; that plan can reapply for approval after one year. So far, 230 of the 574 HMOs nationwide have been reviewed; only 64 or 32% have received full accreditation.

To help employers find the best plan for their workers, NCQA has developed the Health Plan Employer Data and Information Set or HEDIS. A standardized set of performance measures, these questions are used to evaluate and compare managed care plans.

Some plans are using the five-year-old group's standards to issue their own "report cards" about how their plans compare.

IS MANAGED CARE FOR YOU?

But not everyone likes managed care insurance, especially those plans that offer the most restrictions on use. Unfortunately, the more restrictive the plan, the more it saves in premium costs.

For some employees, selecting a straight HMO plan is not a matter of choice. Loretta Saunders, a 38-year-old divorcee from Atlanta, chose Kaiser Permanente's HMO plan because "I can't afford the premiums elsewhere, where I think the options would be better. I'm on a maintenance plan for hypertension, so I need to take medication regularly. It is a pre-existing condition that won't allow movement without being in open season."

Such is the dilemma for millions of Americans. Because the mandate of managed care is to keep you healthy without spending lots of money, many consumers who have medical problems have trouble getting health insurance, unless they join during, "open enrollment" when any eligible employee can sign up.

For her single-person coverage, Saunders pays $35 per month in bi-weekly payroll deductions. Quarterly, doctor visits to check her blood pressure cost only a $5 co-payment. And, each of the two medications Saunders takes costs about $3 per month for a 30-day supply. However, "Kaiser stressed that you had to use their pharmacy. If not, you'll pay more for the prescription," says Saunders, who believes that the HMO is giving her a generic - albeit inferior - version of her medication.

But not every person in an HMO feels this way. Kermit Reynolds, a 64-year-old Washington retiree loves his Kaiser Mid-Atlantic health plan. "Health should be in the hands of the individual. So, the HMO is good for people like me because I feel responsible for my health. If I were sickly, I would be in a more expensive plan," says Reynolds. "The focus is on preventive medicine," he adds.

Reynolds has been in the plan since 1978. Through it he has had minor foot surgery fully paid for at no cost to him; spent seven days in a hospital, plus additional treatment at a cost of $3,000 with only $300 paid by him; taken smoking cessation classes and recently started nutrition counseling for weight control.

For all this Reynolds pays $34 per month for single coverage plus $7 for each 30-day supply of his two hypertension and arthritis medications. Recently, the plan started a mail-in prescription plan whereby Reynolds can get his medicine, for only $4 each, another out-of-pocket savings. His wife also has a single-coverage plan through Kaiser. In their case, having two individual coverage plans is cheaper than family coverage.

MAKING THE TRANSITION

Many who've made the transition to managed care have run the gamut before finding the right health insurance plan. With the birth of their first child, Christopher, 16 years ago, Guelda and Cornell Slade of Houston had a traditional fee-for-service plan. Upon the birth of their second child, Courtney, two years later, the couple had switched to a straight HMO. Guelda saw a doctor only on her initial visit "and maybe every other visit after that. Most of the time I saw physician assistants," she recalls. "The plan was affiliated with only a few hospitals. So even though the doctor's office was near my home, the hospital where I was supposed to deliver was not. When it came time to deliver, I had to go to a hospital 45 minutes away," she recalls. "I had a different doctor who had not seen me before, whom I met while on my back while delivering the baby. I hated it. After that we changed insurers."

Now the Slades have gone to a PPO for family coverage, including for the birth of their youngest child, Chelsey, now four. "I know the traditional plan is of the past, but I preferred it. The PPO works best for us at this time, as long as we stay within the network," Guelda adds.

The Slades like the maintenance benefits of belonging to a managed care plan, especially with children since there's only a small co-pay for visits. For that privilege, Cornell has $100 per month deducted from his paycheck as a chemical engineer for Aceron, a chemical manufacturing firm and a division of New Jersey-based Englehard Inc., for family coverage for five. But, they also have a very high deductible of $1,000 if they go out-of-network for care. "So many of my friends give referrals that are not on the list. But, thankfully, the children's pediatrician and my Ob-Gyn are on the list. We've been able to keep the same ones for the past 14 years," adds Guelda.

Just as the Slades have had to change plans depending upon what their employer has offered and what they could afford, so have physicians had to become more flexible. To keep practicing, doctors have probably had to join as many plans as possible.

Such is the case for Dr. M. Gerald Hood of Atlanta. To retain his everchanging active patient roster, the Ob-Gyn says he belongs to as many as 15 different insurance plans. "Most companies are going to managed care, and there are so many different ones. Sometimes a plan comes to me because I'm in [southwest Atlanta]. But most often my patients come to me and say that their company is switching insurers and they want to know if I'm on that plan or if I'm willing to get on it. I'm sort of forced to take it because at least 50% of my practice is on some plan." Less than three years ago, Hood had an active roster of 3,000 patients; now he says it's down to only 1,500.

If employers are seeing the squeeze of health care benefits on their bottom line, and employees are constrained by economics in their choices, Hood says doctors are feeling the pinch in their practices. "The loyalty is now to the insurance company. [Patients] may want to come to me, but they won't when it's a choice between paying $10 and 20% to 30% of the cost," he admits. Hood says he recognizes that his patients don't want to spend $100 when they could pay only $10 for a visit. "I could see 20 patients a day, and still put only $200 in the bank that day. Then I have to wait for the check with the balance."

ASKING THE RIGHT QUESTIONS

The key to finding the best health insurance is to find the right health insurance for your needs. Although employee options are limited to what employers offer in health benefits, ideally, you'll have a range of insurers to choose from and can look for your physician of choice among the different plans offered.

* Start by taking an assessment of your health condition. Do you or anyone you will be insuring have a pre-existing health condition? Do you need regular treatment or maintenance for this condition?

* Review your past medical claims to determine how much you actually spent on unreimbursed health costs. How do these out-of-pocket expenses compare with the costs of a managed care plan?

* Next, review all the health plans that have been offered to you. Is your current doctor in a plan that's offered by your employer? If so, you can enroll in it and reduce your out-of-pocket costs like Waltina Holston. "My main concern was that I wanted to keep the same primary care Ob-Gyn. I'm willing to change plans to accommodate the doctors I want," says Holston of her switch in insurers.

If not, is your doctor willing to apply for enrollment in that plan? If so, most plans allow patient-members to suggest the names of physicians willing to enroll in a plan. But beware: Increasingly, managed care plans are setting a limit on the number of doctors, their specialty and geographic location of new providers they will accept even though they may tell you otherwise. If there are a number of employees in an area that cannot find appropriate providers, near them, some employers are taking up their cause and asking insurers to re-open their provider roles as a condition of getting their business.

* When looking at the cost of each plan also compare what is being offered. One plan that may be free or low cost may have so many restrictions that it's worth it to pay a few dollars extra to get a more comprehensive or flexible insurer. Assess the benefits of each plan you are offered. Besides choosing a primary care doctor or "gatekeeper," what is the range of specialties offered by the plan? Does this include a choice of laboratories that cover a range of tests? Must you first go to your designated primary care doctor before you can go to a specialist?

* Ask what is the rate of referrals to specialists by primary care doctors in the plan? And must you be referred only to specialists within the plan? The goal of managed care is to have most medical problems seen and resolved by your primary doctor. However, if that physician is not the best one to treat your condition, you want to make certain there are no financial incentives for him or her not to recommend your case to someone else. "If that physician cannot solve my problem, will he refer me to someone else or will he compromise my health by waiting too long?" cautions Reed of Mid-Delta.

If you need to be hospitalized, ask if you must use a hospital within the network. If you have a flexible plan that allows you to get care in or out of network, and you are hospitalized by an out-of-network doctor within a network hospital, you'll still probably get charged as an out-of-network patient. Generally, the status of the physician treating you determines your network status.

* Read, read, read before you sign. The Slades caution that health care plans are like a catch 22. "Read the fine print before signing," advises Guelda. You won't remember all the details, but reading the plan's documents once through carefully will probably trigger questions and/or concerns you can address with your benefits manager or the plan's customer service.

* Find out if the health plans being offered have been reviewed and accredited by the National Committee for Quality Assurance. Although it's no guarantee of how you'll be treated, at least you'll know how your plan stacks up on the major concerns. To get a plan's status, contact NCQA at 202-955-3515 and ask for a copy of the latest list of accredited managed care/HMO plans. You can also download the information by computer through the Worldwide Web @ www.ncqa.org. Also, ask for their free pamphlet: Choosing Quality: Finding The Health Plan That's Right For You.

Finally, consumers are being confronted with more decisions to make, and health care is primary among them. The only way to make good choices is to be informed. Do your homework and know the rules of the plan you choose. If it doesn't meet your needs or expectations, you can always change it.

THE ALPHABET SOUP ON HEALTH PLANS

Distinguishing between health plans that rely on acronyms to convey their meaning can be confusing. Here's a glossary of the most commonly referred to plans and their meanings.

Gatekeeper: another name for the primary physician who oversees a patient's treatment. This doctor controls a patient's access to other medical specialists in a managed care system, and is also called a primary care physician.

Network: a group of doctors or specialists on contract with one or more health care insurers to provide service to its members.

Fee for Service: also known as indemnity insurance, is the traditional method that doctors and other health care providers use to set their fees for each procedure or service they perform.

HMO: or health maintenance organization, is a medical insurance and health care plan that offers a specific list of doctors and hospitals from whom members must receive their care.

PPO: or preferred provider organization, is one type of managed care insurance that contracts with doctors and other specialists to provide services at a discounted rate. Plan members can obtain service from any of these providers without first going to a gatekeeper.

IPA: or independent practice association, is a group of doctors in private practice who contract with managed care plans to service members at a discounted rate. IPA doctors also see non-plan patients on a fee-for-service basis.

PMG: or participating medical group, refers to doctors and other specialists who practice together. This group contracts its service with a managed care insurer, most often an HMO.

POS: or point-of-service plan, refers to insurance that allows members to receive care from a specific list of doctors and specialists who've contracted with that insurer. Members are free to see non-plan doctors at their own discretion.