When reviewing options to get health insurance, you will likely come across HMO and PPO plans. While both are types of managed care health plans, there are important differences between HMOs and PPOs in terms of how they control costs, manage your care, and impact your choice of healthcare providers.
Understanding the key distinctions can help you decide if an HMO or PPO better matches your needs, preferences, and budget when choosing group health insurance from an employer or individual coverage from the health insurance marketplace. This overview covers the basics of HMOs vs. PPOs and how they compare.
HMO Health Insurance Plans
HMO stands for “Health Maintenance Organization”. HMOs emphasize preventive care and managing any illnesses early on before they become more serious and expensive to treat. Here are some typical features of HMO health plans:
- Tend to have lower monthly premiums and out-of-pocket costs
- Provide care through a limited network of doctors, hospitals and facilities
- Require you to have a primary care physician (PCP) to coordinate care
- Need referrals from your PCP before seeing specialists
- Pre-authorization is required before getting many services
- Out-of-network care is typically not covered except emergencies
- You must live or work within the HMO’s service area to have coverage
By restricting networks and managing utilization, HMOs are able to reduce costs and pass along those savings in lower premiums. But this comes at the expense of choice and flexibility for members.
PPO Health Insurance Plans
PPO stands for “Preferred Provider Organization”. PPOs offer a broader network of healthcare providers and facilities while still incentivizing members to use in-network providers when possible. Below are some common PPO features:
- Tend to have higher monthly premiums and out-of-pocket costs
- Give access to a larger network of doctors, specialists and hospitals
- Allow you to self-refer to in-network specialists without needing approval
- Out-of-network care is covered but you pay more
- Pre-authorization is not required for services
- Nationwide coverage means you aren’t limited to a service area
- Deductibles and coinsurance are lower when using in-network providers
While PPOs cost more upfront, they provide more flexibility in choosing providers and managing your care without constraints. Using out-of-network providers will result in higher costs for you compared to staying in-network.
Key Differences Between HMO and PPO Plans
To summarize the main differences:
- Premiums – HMOs typically have lower monthly premiums; PPOs have higher premium costs
- Provider network – HMOs have smaller networks; PPOs have broader provider networks
- Primary care physician – HMOs require a PCP; PPOs do not require a PCP
- Specialist referrals – HMOs require referrals; PPOs allow self-referrals
- Prior authorizations – HMOs require pre-approvals; PPOs do not require authorization
- Out-of-network coverage – HMOs do not cover; PPOs partially cover but with higher costs to members
- Service area – HMOs only cover a certain area; PPOs can provide nationwide coverage
In general, HMOs have more rules and restrictions enabling lower costs while PPOs cost more but offer greater provider choice and convenience.
Pros and Cons of HMO Health Plans
- Lower monthly premiums and out-of-pocket costs
- Little to no deductible for most services
- Care coordination between your providers
- Good option for healthy people with minimal routine care needs
- Very limited provider network
- Need referrals to see specialists leading to delays
- Must change PCPs only during open enrollment period
- Difficulty getting approval to use out-of-network care
- Loss of coverage if you move outside the HMO’s service area
HMOs work well for individuals and families who rarely need specialty services and are comfortable staying within their provider network. Lack of flexibility becomes an issue if you have more complex health needs.
Pros and Cons of PPO Health Plans
- Large national and regional provider networks
- Ability to self-refer to specialists
- Lower costs when using in-network providers
- Nationwide coverage if you travel or move
- Continued coverage even if your doctor leaves the network
- Higher monthly premiums
- Plans may have high deductibles and copays
- Much higher costs when seeing out-of-network providers
- Pre-authorizations required for some services
- Need to file claims when using out-of-network providers
PPOs offer more flexibility and options, but you’ll pay more for access to broader provider networks and out-of-network coverage. You can reduce costs by staying in-network.
Who Should Choose HMO Health Plans?
HMOs make the most sense for:
- Individuals who are generally healthy with few medical costs
- People who don’t mind restrictions of a limited provider network
- Those who live and work within the HMO’s service area
- Families who want to pay lower premiums and cost-sharing
- People who don’t expect to need many specialty services
- Anyone satisfied with the HMO’s participating providers
Who Should Choose PPO Health Plans?
PPOs are likely the better option for:
- Families who want access to many provider options
- People with specific doctors they want to keep seeing
- Those who value flexibility in choosing providers
- Employees who travel frequently for work
- People living part-time in different locations
- Anyone needing regular specialty healthcare services
- Those unwilling to obtain referrals and pre-approvals
- Individuals with complex or chronic medical conditions
In summary, HMO and PPO plans take very different approaches to balancing costs, provider networks, and coverage management. HMOs offer affordability through restrictive networks and utilization management while PPOs provide broader access with fewer rules but at a higher price. By understanding these key differences in plan design, you can determine whether an HMO or PPO better fits your health profile, lifestyle, budget, and priorities as a healthcare consumer.
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What is the difference between an HMO and PPO?
HMOs require choosing a primary care doctor who refers to specialists while PPOs allow flexibility to visit any in-network doctor without referrals.
What types of health insurance plans are common?
The two most common types are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Other options include EPOs and POS type of plans.
How do HMO networks work?
HMOs have specific provider networks – you generally must receive care from HMO doctors to qualify for full coverage with no out-of-network costs.
What is a PPO network?
PPOs have in-network doctors and facilities but also allow some coverage for out-of-network care, usually with higher costs. Networks are often larger than HMO options.
How do HMOs and PPOs differ in terms of choice?
HMOs have more restrictions – you need referrals and choose one primary doctor. PPOs provide more flexibility to directly visit specialists without referrals.
What are some key coverage differences?
HMOs typically have lower premiums but higher overall costs if using out-of-network care. PPOs balance premiums and coverage both in and out of network.
Which plan type is best for most health needs?
There’s no single answer – consider your providers, budget, coverage needs and likelihood of specialist care. Both HMOs and PPOs can suit different people.
How can I choose the best health plan?
Review costs, networks, covered services and understand your options. Consult advisors to determine the health plan type and specific carrier best suited for your expected medical services and costs.
What factors should I consider when choosing between an HMO and PPO?
Key things to compare include monthly costs, coverage levels, provider access in terms of networks and referrals, and flexibility to directly visit specialists. Your health situation and usage patterns also matter.
Can I switch between HMO and PPO if my health needs change?
You may be able to change plans during open enrollment periods each year if costs or services better suit new circumstances, such as starting a family or receiving a chronic diagnosis.