Health care costs are one of the largest expenses for retirees. According to the Fidelity Retiree Health Care Cost Estimate, the average 65-year-old couple will need $300,000 in savings to cover health care costs in retirement.
While this sum may feel intimidating, retirees can make it easier to manage health care expenses by understanding the differences between different health care plans such as health maintenance organizations (HMOs), preferred provider organizations (PPOs) and exclusive provider organizations (EPOs).
EPOs may help to offset health care costs when you retire. So what is an EPO plan, and how can it benefit you if you're no longer covered by your employer's plan? Here's what you need to know.
What Are Provider Networks?
To understand EPO plans, it's first important to understand provider networks.
Most health insurance carriers have their own provider networks, which is a select group of doctors, nurses and health care facilities that agree to provide care at a lower cost. When you receive care, you pay a lower fee for services from one of these in-network providers. However, if you seek care outside of your insurer's provider network, then your out-of-pocket costs will likely be higher since your insurer hasn't contracted with these providers.
What Is an EPO Plan?
An EPO plan is a health care plan that covers just health care providers inside your network; these plans will only pay for out-of-network services in the event of an emergency, potentially limiting your choice of health care providers.
The trade-off is that the monthly premiums for an EPO plan are generally lower compared with other health plans; your deductible may be higher, however, meaning you'll pay more out of pocket for care. This is especially true if you visit a doctor or specialists frequently.
The advantages and disadvantages of EPO plans become even more clear when compared against HMOs and PPOs.
EPOs vs. HMOs
Similar to an exclusive provider organization, an HMO offers a local network of providers and hospitals from which plan members can receive health care services. You must live or work within the plan area to be eligible for this coverage.
If you have an HMO plan, you'll most likely have to choose an in-network primary care physician or health care provider to coordinate your care and refer you to specialists or other in-network providers, when necessary. This differs from an EPO plan, which requires pre-approval or pre-authorization for certain medical services (such as those the plan considers elective and not medically necessary).
With an HMO, providers either work directly for the HMO or have an agreement to provide care at a reduced rate, which then gets passed on to plan members in the form of lower monthly premiums. With an EPO, you pay lower rates for in-network care, but the provider fee structure works differently in that in-network providers are paid per service.
Both plans are able to offer lower monthly premiums because the provider networks are more defined — or, some would argue, more restrictive. One of the main drawbacks of EPOs and HMOs is that they offer very little coverage for out-of-network care, limiting this coverage only to emergencies. However, HMO plans often come with low or no deductibles. This can reduce your out-of-pocket costs, although you may still have a co-pay, or a portion of the total costs of your visit, at the time you receive a specific health care service.
EPOs vs. PPOs
A PPO is significantly different from an EPO or HMO plan. Specifically, it offers more choice.
A PPO offers the flexibility to see providers whether they are in or out of network. This perk comes with higher monthly premiums, and you'll still pay more if you get out-of-network care. One analysis found that the average 2021 monthly premium for individual coverage with an PPO plan was $517, compared with $469 for an EPO plan and $427 for an HMO plan.
Unlike with most HMOs, PPO plans do come with a deductible. However, it generally isn't as high, since you're already paying higher monthly premiums. For example, one study found that employees covered under a PPO plan paid an average of about $1,200 annually for individual coverage — about half the average cost of a high-deductible health plan.
Is an EPO Plan Right for You?
As you weigh your health insurance options in retirement, consider the potential costs, your health care needs and the importance of flexibility to you.
Particularly if you have limited retirement savings, an EPO plan may be a suitable option because they typically offer lower premiums. However, having a higher deductible out-of-pocket maximum means that these plans can get expensive if you face a serious illness or have chronic conditions that require regular treatment.
As you review EPO plans, pay close attention to the out-of-pocket maximum. This is the most you'll pay for covered health care services. For example, if you purchase a Marketplace plan this year, the legally allowed out-of-pocket maximum is $8,550 for an individual. Read the fine print on any EPO plan you're considering to ensure you can afford the out-of-pocket maximum, even though you may never reach that limit.
Choice of Health Care Providers
If you want more control over the health care providers you see or already have an established relationship with a certain provider, then a PPO plan may be a better option. Having that flexibility may be worth the higher monthly premiums.
Medicare is an additional factor if you're 65 and older. Some retirees have a second insurance policy to supplement their Medicare coverage. However, if this is your situation, you'll need to clearly understand the rules about who pays first. Your private health plan may pay first, while Medicare covers the remaining costs — or vice versa.
If you're 65 and older and don't have coverage through an employed spouse or a former employer, then in most cases Medicare will likely pay first. However, call prospective insurance providers and contact Medicare's Benefits Coordination & Recovery Center to get clarification about this before you sign up for a plan.
Navigating Health Insurance in Retirement
Health insurance is an ongoing but necessary expense even when you retire. If you have strong retirement savings, then you'll have more choice when it comes to health care coverage. However, if you're concerned about paying for health care premiums as you age, an EPO plan may be worth considering to offset your health care costs and help you access care.