HMO vs. PPO Plans

HMO vs PPO can be explained as such: HMO stands for Health Maintenance Organization and PPO stands for Preferred Provider Organization. The basic differences between the two are:

  • Restrictions on the doctors you are allowed to see

  • Out-of-network services that they cover

  • Costs of plans

  • Size of the network on offered plans

Explaining HMOs

Basically, an HMO will offer you access to health care providers who are in a network that is created by an insurance company. These plans are designed for patients who are willing to accept a more limited choice in providers in exchange for less expensive monthly insurance premiums. Sometimes, they may not be required to pay deductibles.

Health care providers working for HMO networks are generally paid less than they would receive in a different type of practice. Hospitals and doctors in HMO networks choose to make this compromise in order to have access to a potentially larger pool of potential patients.

Only a certain number of hospitals and physicians are contracted to an HMO in any given location. So insurance companies will not cover any treatment patients receive from providers who are out-of-network.

HMO Health Insurance Plans

Typically, HMOs have a greater number of restrictions in their coverage, such as:

  • Some HMO plans will require you to choose a primary care physician (PCP) who will then oversee all of your care, decide on your treatment and refer you to specialists when necessary.

  • You may not be able to see specialists or have certain tests unless your primary care physician provides you with the necessary referral.

  • You may only be allowed a certain number of treatments, tests or visits under some HMO plans.

  • You will be responsible for all costs of any treatment that is received outside of the network.

Explaining PPOs

PPOs also contract with certain healthcare providers to create a network, but they offer a great deal more flexibility as to which facilities or physicians patients can use for their health care. When patients use out-of-network providers, PPOs will cover a portion of the cost for any treatments.

PPO Health Insurance Plans

While a PPO will allow patients to use physicians and hospitals that are not part of its network, and even cover a portion of the costs, it will usually be at a much lower rate than is covered for health care providers within the network. Naturally, this will lead to greater out-of-pocket costs.

PPOs will also often allow you to see any doctors or specialists you prefer without having to choose a primary care physician beforehand or getting a referral. Of course, these advantages do come at a cost. The monthly premiums for PPO plans can be higher than comparable HMO plans, and they almost always have a deductible.

HMO versus PPO: Plan Comparison

HMO and PPO plans are similar in that they both offer access to a network of hospitals, physicians and other health care providers. There are only a few basic differences between HMO and PPO plans, but they are significant.

  • HMO plans generally have lower monthly premiums, and either a very low deductible, or none at all.

  • HMO plans require patients to choose primary physicians, and can only have certain tests or see specialists with a referral from them.

  • HMO plans do not cover any costs whatsoever for treatment received outside the network.

  • PPO plans allow patients to see any doctor they choose, without any referrals.

  • PPO plans will cover a portion of the costs for treatment even if the patient receives it from doctors or hospitals outside their network. However, it will be a much lower portion than if the treatment is received within the network.

Are PPOs really more expensive?

While PPO plans can sometimes cost as much as four times more than HMOs, there are some exceptions to the wide difference in costs. For instance, employer sponsored PPO plans are often in line with HMO premiums. The average price of annual premiums for an HMO plan in 2016 was $6,576, while the typical employer sponsored PPO plan during the same year was $6,800.

Also, people should consider other costs when comparing plans, such as:

  • Co-insurance

  • Co-pays

  • Prescription drug coverage

  • Maximum out-of-pocket caps and other costs

If you don't already have doctors or hospitals that you want to keep using, then you will probably not mind trading the restrictions of HMOs for lower premium prices. If you travel often and are frequently outside an HMO network, you may want to choose a PPO plan for peace of mind. Just don't forget to total all of the costs, not just the premium prices.

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