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PPO vs. HMO Insurance: What's the Difference?

PPO vs. HMO Insurance: What's the Difference?
Holly Johnson
Updated August 30, 2021
4 Min Read

Two of the most popular health insurance plans are Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs), yet few people truly understand the differences between them. However, knowing more about these types of organizations and plans could help you select health insurance that is better for your family. Not only can costs vary dramatically when you compare HMOs and PPOs, but these two plans vary in terms of their networks and providers you can use. 

But, how do you decide which type of health insurance would serve you best? Keep reading to learn more about HMOs and PPOs, how they're different, and how to decide which type of plan is right for you. 

What is Health Maintenance Organization (HMO)?

We already mentioned how HMO stands for Health Maintenance Organization, but what does that really mean? For the most part, HMOs got their name because they have their own network of doctors, hospitals, and other healthcare providers who have agreed to specific payment levels for their services and care. With a network already chosen for its members, HMOs are more easily able to curb costs and keep healthcare premiums down.

Beyond just monthly premiums, HMOs also tend to have lower out-of-pocket costs, including copays and coinsurance. With that being said, it's important to note HMOs don't cover any out-of-network care unless you're experiencing a real emergency, meaning you may be limited in terms of specialists you can see. By and large, this makes HMOs best for people who need basic healthcare and don't have any chronic or ongoing medical conditions.

When you get started with a HMO, you'll need to select a Primary Care Physician (PCP) within the network. You'll always see this professional when you need medical care, and you can only see other healthcare providers within your network with a direct referral.

What is Preferred Provider Organization (PPO)?

Like HMOs, Preferred Provider Organizations (PPOs) have their own network of healthcare providers who have agreed to perform services and care for a predetermined rate. However, PPOs let you seek out care from any healthcare provider whether they're in your network or not.

This means you do not have to see a PCP at all, much less to get a referral for a specialist. PPOs are actually known for not requiring referrals of any kind, which can save you time and stress as you figure out the best ways to care for your health and any conditions you have.

Just keep in mind that, in exchange for more freedom regarding the healthcare you seek, you'll need to pay higher premiums for this type of plan. You'll also face higher out-of-pocket costs when you do seek healthcare, such as higher co-pays and heftier coinsurance requirements.

Differences Between HMOs and PPOs

It's possible you'll be offered a HMO and a PPO as options from your employer, but you can also shop for healthcare on your state exchange or on Healthcare.gov. As you compare HMOs and PPOs available in your region, here are the main differences to keep in mind.

Health Maintenance Organization (HMO)Preferred Provider Organization (PPO)
How do costs compare?Lower premiums, co-pays and coinsuranceHigher premiums, co-pays and coinsurance
Do you have to see a Primary Care Physician (PCP)?YesNo
Are referrals required?Yes, by your Primary Care Physician (PCP)No referrals required
Is out-of-network care covered?Only in true emergenciesYes
Are claims required?Usually not since the bulk of your care is in-networkYes whenever you seek out-of-network care

Which is Better? HMO or PPO?

The right type of plan varies from person to person and family to family, and it's easy to see why. Where you might prefer to purchase the least expensive healthcare plan you possibly can, someone else might prefer to have as much flexibility as possible, including the option to see specialists without a referral.

Can't decide? Here are some signs you might be better off with either type of plan.

A HMO may be better if:

  • You need to keep health insurance premiums and out-of-pocket expenses as a minimum
  • Working with a Primary Care Physician (PCP) for most of your healthcare needs is not a problem
  • You don't mind getting referrals to see specialists in your network
  • Basic preventative care is your main goal with healthcare right now

A PPO may be better if:

  • You don't want to have a Primary Care Physician (PCP) being the gatekeeper for your healthcare
  • Seeing top specialists is one of your healthcare priorities
  • Higher costs are not a problem provided you are getting the care you need
  • Flexibility is key when it comes to your decisions regarding healthcare

Do Doctors Prefer HMOs or PPOs?

It's hard to say whether doctors prefer HMOs or PPOs since, just like anything else in healthcare, opinions vary widely. Some doctors might prefer the HMO since they get to build long-term relationships with clients in their network, especially if they serve as a Primary Care Physician (PCP). On the other hand, delays are often a problem within HMOs since PCPs serve as the gatekeeper to other healthcare, including the potential for referrals. For that reason, doctors who work within a HMO network may deal with more roadblocks and red tape when it comes to providing care.

At the end of the day, HMOs and PPOs have their own network of providers who agree to be paid predetermined rates for care. With that in mind, individuals and the doctors who provide healthcare should enter into a contract (or select a healthcare plan) that suits their needs best.

The Bottom Line

Whether you're in the market for a private health insurance plan or you're comparing employer-based options, it's smart to do as much research as you can. While HMOs and PPOs are some of the most popular healthcare plans you can buy, you might also want to look into other plans like Exclusive Provider Organizations (EPOs) and Provider Sponsored Organizations (PSOs). 

In addition to the cost of monthly premiums for plans you're considering, other factors you'll want to consider include:

  • Out-of-pocket costs, including copays and coinsurance
  • Provider networks in your area
  • Doctors and specialists who operate in networks you're considering
  • Any employer assistance with healthcare costs, which can vary depending on the plan you choose

At the end of the day, you should work toward finding a healthcare plan that provides the best possible care for a price you can afford. That could ultimately be a HMO or a PPO, but make sure your decision is an informed one.

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