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The PPO Problem — Have We Reached a Tipping Point?

August 2019

Preferred Provider Organizations (PPOs) are the most prevalent type of commercial health plan in the United States. Originally, the “preferred” part of PPO actually had meaning. A select group of providers and hospitals were chosen to provide care to members. But in the 1990s, that all changed. Without rehashing the history of managed care, a serious backlash, driven by both fact and fiction, led PPOs to adopt an open access/go-anywhere-you-want approach. This misguided strategy has played a significant role in the current state of healthcare in the U.S., where costs are out of control.

Today’s PPO market

In most markets, 90-95% of the available providers are “preferred”, meaning they are in the PPO plan. The bar for being preferred is clearly low. Earning the “preferred” label is akin to getting a participation medal at the school track meet. Every provider is preferred, which makes the title meaningless.

How did we get here? The promise of the modern-day PPO was twofold. It was supposed to offer broad access — the ability to choose your doctor or hospital from an expansive everyone “in network” — along with the lowest rates for care possible. It’s the proverbial “have your cake and eat it too” approach. Here’s the problem: PPOs have failed to deliver on both cost and quality. In fact, the PPO model has resulted in decades of cost increases with no end in sight.

According to the Kaiser Foundation, since 2002 workers have seen a 270% increase in costs compared to only a 64% increase in wages. The American Public Journal of Health has reported that approximately 530,000 families file for bankruptcy each year because of medical bills. Do you know how many of these are your employees?

Since 2002 workers have seen a 270% increase in costs compared to only a 64% increase in wages.

Adding to the PPO problem

For years, rather than embracing the fact that the PPO model, at its core, is severely broken and a root cause of the healthcare problem, the industry has sought to add on services for fear of disrupting the beloved PPO. Wellness incentives. Transparency tools. Activity trackers. Health screenings. The list goes on and on. While these well-intended programs have increased member engagement, they have failed to deliver real change in healthcare. It has become increasingly apparent that we’re not going to “health app” our way out of this problem.

As healthcare costs have continued to rise year after year for employers and their employees, the promise of the PPO model has faded. People are fed up with the results of the antiquated PPO model and are finally moving to real alternatives.

Is the PPO model failing your employees?

Meet John Smith. He’s worked for the same company for 8 years and brings home $50,000 annually after taxes. While his wages have remained stagnant, his company’s healthcare costs have increased year-over-year and his employer recently introduced a high-deductible PPO plan.

The Smith family — John, his wife and two school-age children — now have a $6,000 deductible and a $12,000 maximum out of pocket. They also have a $1,100 monthly mortgage payment, student loans and credit card debt. If the Smiths had a high-cost medical bill, what would they do? They don’t have enough money in their savings to cover out-of-pocket expenses. More than likely, they would have to declare bankruptcy.

The PPO model is not only failing to deliver better health outcomes, it’s having a negative effect on the financial health of employees, helping to bankrupt those like the Smiths. Do you think they would be willing to try something new in exchange for serious savings?

Reaching the PPO tipping point

As a former HR executive and CEO responsible for the healthcare costs of our employees, I’m seeing this shift away from PPOs firsthand. Hundreds of companies that have embraced traditional PPO plans for decades are realizing the impact that these plans are having on their employees, their employees’ families and their bottom line. They are looking for solutions that will allow them to take back control of healthcare, giving real savings back to the employer and to families like the Smiths. It’s about time.

Chris Cigarran

about the author

Chris Cigarran is the CEO of Imagine Health, where he works alongside brokers and clients to realize the benefits of the Imagine Health model. A different kind of health plan, Imagine Health lowers spend today, controls costs over the long term and gives control to the people who pay for healthcare: employers and their employees. Ready to challenge the status quo and take back control of healthcare? Contact Imagine Health to get started.


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