There are a lot of different types of health insurance plans and each one works differently. Two of the most common are Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). These two types of health insurance are quite different in terms of how they work and how much they cost. As a result, understanding both kinds is essential to making an informed decision about your health insurance.
An HMO is a type of health insurance plan that generally limits care to a specific network of providers. Any care received outside this network is generally not covered, unless it is an emergency. You may have to live or work within an HMO’s service area in order to qualify for coverage, which insures that you are close enough to access the doctors in the network.
HMOs tend to focus on integrating your care between providers, with providers often sharing information and working together to help you receive a better outcome. An HMO generally requires you to designate a primary care provider (PCP), and that provider will need to issue referrals for you to see specialists. Because of these referrals, specialized care does not generally need an insurance pre-authorization in order for treatment to begin.
With the care managed by a PCP and strong coordination between providers, costs are kept lower than other types of insurance plans. As a result, the monthly premiums, deductibles, and copayments of an HMO will generally be lower than a comparable PPO plan. However, the freedom to seek treatment outside of your PCP’s recommendations and the HMO’s network will be severely limited.
A PPO also has a network of providers, and you will typically pay less for care if you use them. However, there is generally also coverage for out-of-network providers, although copayments and deductibles will be higher. A PPO will usually use a separate copayment and deductible for in-network care and out-of-network care.
Many Americans prefer a PPO because of the flexibility it gives them in choosing providers and selecting their own care. A PPO does not require a primary care provider to be designated, and specialists can be seen without a referral. However, because there are no referrals, care generally needs to be pre-authorized by the insurance company before it can begin.
Because of the broader access to providers and the fact that referrals are not needed to see a specialist, a PPO will generally have higher monthly premiums, copayments, and deductibles than a comparable HMO. Although coverage is provided outside the provider network, it’s still important to make sure your most important doctors are covered in the PPO network to avoid excessive costs.
Both HMOs and PPOs have advantages and disadvantages. If you like lower cost care in a specific geographical area where you treatment is coordinated between providers and your PCP helps you decide what specialists, if any, you need to see, an HMO may be the best choice for you. If, on the other hand, you need more flexibility in choosing your providers and care, and are willing to pay a premium for more choices, you may want to choose a PPO. Knowing the differences between these two types of plans will help you make the best choice for yourself and your family.
For more information on the benefits and disadvantages of an HMO, read The Pros and Cons of an HMO.