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What is a health insurance referral?

“To sum it up…”

  • Referrals can be advice to subscribers to use a specialist or other plan resource
  • Referrals can be needed authorizations to use network resources
  • Some plans pay for outside resources but only with a referral
  • Some plans pay cost sharing without referrals for outside network services, but on a limited basis

Health insurance uses referrals in two distinct ways. One is the ordinary act of recommending a specialist, doctor, hospital, or type of treatment. This idea of referral is the ordinary medical referral.

The other way health insurance referral arises is in the sense of a permission or authorization. Some plans require permission to use resources, and that permission takes the form of a written referral. Without a referral, the plan may not cover the benefit.

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Health Insurance Networks


Managed care companies deliver medical services through networks. Networks consist of doctors, hospitals, clinics, and other medical facilities that agree to provide services to members of a health plan. Network providers agree to below market prices, and in exchange, they get a high volume of patients from the health plan.

Primary Care Physician


A common and important way of making referrals is the primary care physician. The PCP is a feature of HMO and POS plans. The PCP is a gatekeeper as well as a medical care provider. He or she treats the conditions that they can, and they refer members to other resources when needed.

The PCP referral is a permission to use network resources. Referrals also carry the insurer’s obligation to pay costs sharing percentage.

Types of Managed Care and Referrals

Managed care uses referrals to control the use of network resources. Those with primary care physicians require referrals to network resources. Those managed care plans that do not use a primary care physician use self-referral but sometimes pay lower levels of cost sharing for outside resources.

Role of Referrals in Managed Care


Referrals represent access to resources and cost sharing from the insurance company. Consumers tend to need flexibility when selecting providers so that they can satisfy their needs and preferences. Insurance companies try to give incentives for consumers to use the low-cost resources in their networks.

The below-listed items describe the referral process for managed care.

– HMO: Health Maintenance Organization

This type of managed care emphasizes low prices for services and prevention. The subscribers come under the care of a primary care physician. This doctor provides care in their field then refers subscribers to other network resources as needed. Once past the deductible, the HMO provides cost sharing for network services but nothing for outside services.

–EPO: Exclusive Provider Organization

is the Exclusive Provider Organization. In this model, there is no primary care physician and no referrals. The subscribers can use network resources by self-referral. The EPO does not pay for outside network services.

– PPO: Preferred Provider Organization

This type of plan has no primary care physician, and subscribers can select any network resource. They get cost sharing benefits with self-referrals to the network resources.

PPO also pays some cost sharing for outside resources. This benefit depends upon the plan and the nature of the specialized services.

– POS: Point of Service

This system uses a primary care physician and offers low price incentives for consumers to use network resources.

HMO-POS is the combined HMO-Point of Service type of plan. It is a traditional HMO with the exception that the Primary Care Physician can issue referrals to outside services. When referred to outside resources, consumers get full cost sharing from the insurer.


This is the Private Fee For Services model. It has no primary care physician, and subscribers select resources by self-referral. Original Medicare is an example of a private fixed fee for services system.


Managed care plans, such as Original Medicare, that do not use a primary care physician permit subscribers to determine which specialists and other network resources they wish to use. This is the maximum in flexibility for consumers. They do not have to negotiate prices, and they have a wide range of freedom when selecting medical care.

In-Network versus Outside Network


The distinction between network and outside network services relates strongly to the use of referrals. Some plans(HMO, EPO, and POS) require referrals to use network resources. They do not offer referrals to outside service providers and do not cover outside services with cost sharing.

The use of outside services does not count towards plan limits or deductible thresholds. The more flexible plans allow self-referral to network resources but do not give full cost sharing to outside resources.

Self-referrals and Networks


Plans that permit self-referrals typically pay cost sharing for outside services. They pay outside services at lower levels than with in-network services. Some plans permit self-referral and pay nothing at all for some outside services. This often occurs with expensive outside services.

Like plans that do not pay outside sources, the self-referral plans resemble the network-only approach of the HMO, EPO, and POS models.

Restricted Customer Choice

Managed care programs of nearly every kind reward subscribers for using network resources. The exception is the Private Fee for Services type of plan. This open-ended plan does not limit the subscriber.

The members can self-refer and choose any medical service provider that accepts the plan. The medical care providers have the restriction of the agreed price for the services.

Referrals Link Subscribers to Services


Referrals are important to getting good value and service from a health plan. The primary care physician may be a gateway to services in some plans, but he or she can also provide valuable medical information based on familiarity with patients.

Self-referral offers flexibility, but without qualified advice, so it may be less productive than physician referrals.

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