Whether you are an individual choosing a medical provider to visit for diagnosis or treatment or you’re an employer in the process of deciding which group health insurance plans best meet your needs or the needs of your employees, it’s important to have a clear understanding of the difference between in-network and out-of-network providers. This can help you make wise decisions that greatly impact out-of-pocket healthcare expenses.
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In Network vs. Out-of-Network: What’s the Difference?
The majority of health insurance plans include a network of medical service providers that have entered into a negotiated agreement with the insurance company. As a condition of being included in this network, these providers agree to honor a reduced fee schedule for services provided to the insurance company’s covered individuals.
In-network healthcare providers and facilities have an agreement in place with the insurance company to provide services to plan participants at a negotiated reduced rate.
When a covered individual goes to an in-network provider, the fee for service is billed to the insurance company at the discounted rate specified in the contract with the insurance company.
The covered individual pays out-of-pocket per the negotiated copay or coinsurance terms specified in the policy.
Out-of-network healthcare providers and facilities do not have an agreement to participate in a plan's provider network or provide services at negotiated rates.
When a plan participant uses the services of an out-of-network provider, the fee is billed to the insurance company at full price.
This results in a higher overall cost, which is covered to a lesser degree than in-network care (if at all).
Plan Selection With Network in Mind
There are several types of health plans, each with a specific network, coverage limits, and out-of-pocket payment requirements. Before selecting health insurance coverage, it’s important to know how extensive the network is, whether or not out-of-network care is covered, and — if so — to what extent.
Some plans feature sizable multi-state networks, while others have much smaller networks. Some only include healthcare providers within a limited geographic area.
Certain types of health plans do not provide any coverage for out-of-network providers, barring an emergency.
Other plans cover out-of-network visits or services under certain circumstances, but to a significanlty lesser extent than in-network providers would be covered.
Out-of-Pocket Cost Considerations
No matter what type of health insurance plan you have, the out-of-pocket cost of using services of an out-of-network healthcare provider can be significant.
Depending on plan coverage, an insured individual could have to pay as much as 100% of the non-discounted cost of care or other services received from a provider who is not in the network for their plan.
Even with a plan that provides some level of coverage for out-of-network care, much more of the cost of care is passed on to the plan participant rather than the insurance company. Additionally, care is billed at full cost rather than a discounted rate, since there isn’t a negotiated agreement with the insurance provider.
While terms vary from one policy to another, as an example, a plan that offers an 80/20 coinsurance for in-network care might limit coverage to 60/40 for out-of-network care (or might not cover it at all). Rather than being responsible for 20% of the discounted cost of care (after meeting any applicable deductible) with an in-network provider, someone who has a policy with these terms would be responsible for 40% of the cost of full-price care.
You may be wondering why anyone would consider a plan with a very limited network or one that doesn’t cover out-of-network care. It’s certainly true that health insurance plans that have extensive networks and cover out-of-network care offer more flexibility than more limited plans. However, they also come with a higher price tag.
Plans with a limited localized network and/or ones that don’t cover out-of-network care tend to have the lowest premiums. Those who are looking to minimize monthly expenditures often choose this type of plan, especially if they don’t expect to need much medical care and don’t often travel outside of the geographic area included in the network.
At the opposite end of the spectrum, plans that have the most extensive networks and that allow participants to utilize any medical provider they prefer tend to have the highest premiums. People who don’t mind paying a higher premium in exchange for the security of having the most extensive coverage in place often choose these plans.
For those seeking a balance between network size, flexibility, and premium cost, mid-range plans can be a good choice. For example, plans that cover out-of-network care, but only if the individual is referred by their primary care physician, tend to have lower premiums than the most flexible plans and higher premiums than the most limited plans.
Always Verify In-Network Care
Keep in mind that an insurance plan’s network is broader than just the doctor a person goes to for an office visit. To avoid having to pay out-of-network fees, it’s important for every medical provider involved in your care to be in-network for your plan. Medical providers can include a wide variety of individuals and facilities, such as:
Outpatient surgery centers
Surgical team members (including Anesthesiologists)
Durable medical equipment companies
Physical therapy services
In order to minimize out-of-pocket expenditures and get the greatest value from your health insurance policy, it’s best to use in-network medical providers whenever possible. Otherwise, if you go to your in-network physician but your lab work is completed at an out-of-network lab, you may owe an additional fee beyond the copay or coinsurance amount you’d expect to pay based on the terms of your plan.
No matter what type of health insurance plan you have, it’s important to fully understand the terms of coverage. Always verify whether any medical provider involved in your care is in-network so you won’t be surprised by unexpected bills that have to be paid out-of-pocket.
Health Plan Options for Everyone
If you're an employer selecting health insurance plans for your team, there's a lot to consider when it comes to in-network and out-of-network providers. It’s not unusual for a company to make several plan types available to employees so that each team member can choose what works best for them. It makes sense to have a lower cost option for those with a higher risk tolerance, and more pricey plans for those who expect to need to seek medical care or who have a lower tolerance for risk.
By utilizing the services of a professional employer organization (PEO) like Justworks, even small businesses can easily offer access to a wide selection of high quality health insurance plans. From initial set-up to open enrollment and health insurance renewals, working with a PEO really simplifies the process of offering access to health coverage solutions that meet employees’ needs.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.