HMO vs. PPO What’s the Difference?
Managed-care plans attempt to reduce medical care costs without sacrificing quality care. With the growing requirement for managed care plans, HMO and PPO plans have gained popularity over traditional fee-for-service plans, where coverage is provided irrespective of provider or hospital used.
An HMO insurance is a Health Maintenance Organization, while PPO stands for Preferred Provider Organization.
The differences, besides acronyms, are discrete. But the major differences between HMO and PPO plans are based on the cost, size of the plan network, your ability to see experts, and coverage for out-of-network services.
When you’re selecting a plan, you should consider your total health care costs, not just the monthly premium you’ll pay to an insurance company each month.
The premium is significant, but other amounts, sometimes lumped together as “out-of-pocket” costs, can affect your total spending on your health care and sometimes be more than a monthly premium.
Among the “out-of-pocket” expenses to consider are the coinsurance, deductible, and copayments, and if there is an “out-of-pocket” maximum to your plan.
The deductible is the amount you spend on covered services before the insurance company pays for anything other than free preventive services.
Copayments and coinsurance are payments you make whenever you obtain a medical service after reaching your deductible.
And the “out-of-pocket” maximum is the most you’ll have to spend individually for covered services in a year. After reaching it, if your health insurance program has one, the insurance company will pay 100% for covered services.
Primary Care Physician
Some HMO plans require you to select a Primary Care Physician (PCP). A PCP is typically part of a medical group or hospital system. Restricting referrals to a PCP is a way HMOs contain costs, under the idea if one provider is coordinating care, it can be more efficient since your PCP’s referral assures the insurance provider that specialized care is medically necessary
Deductible and Copay
While often not having a deductible or low deductible, HMOs typically need copayment fees for non-preventive visits.
On the other hand, a PPO permits members to see any health care provider in the insurance company’s network, without a referral — even experts. Often, if your situation needs regular visits to specialists, this makes a PPO preferable to an HMO, since there is no PCP requirement for referrals. And there are fewer limitations on seeing out-of-network providers.
On non-preventive medical care, such as HMO plans, a PPO plan will usually have copayments. But a PPO plan will also likely have a yearly deductible and higher premiums.
The significant differences between an HMO plan and a PPO plan are:
- Provides more flexibility in selecting a doctor or hospital
- Typically has fewer restrictions on seeing out-of-network providers
- Sometimes covers the expenses of visits to out-of-network providers.
- The majority of companies that provide health insurance benefits to employees offered PPO plans — 73% — while only 37% provided HMOs in the 2018 survey.
- Usually are more affordable, with lower monthly premiums and a little or no yearly deductible
- Usually, need PCP referrals to see specialists for non-emergency needs
- Typically offer a list of network providers, including specialists — but if you elect to visit a doctor outside of the network, there may be no coverage provided. You will have to pay the full cost of the visit.
Which Insurance Plan is Best for You?
Determining which plan is better for you depends on your current or expected health requirements. Paying the lowest possible monthly premium may appear right for you now, as time goes on you might require more flexibility like a lower deductible later.
Before deciding, ensure you review a list of in-network providers where you live first. You also should realistically gauge your income, check HMO availability where you reside, and consider if you will require to see any specialists in the coming year.
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