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

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HMOs have more restrictions than PPOs but are cheaper, costing an average of $41 less per month.

Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) are insurance plans that cover basic and specialized health or dental care. The differences between HMO and PPO plans include where you can receive care and how they set your prices. Selecting the right option and following plan guidelines help you to get the most coverage from your plan at the lowest available cost.

HMO vs. PPO: What are the differences?

The main differences between HMO and PPO plans are costs versus the freedom to choose where you receive health care. You may need the flexibility of a PPO, which allows you to choose a provider, but you pay more in monthly rates and when you use your insurance. Or you may be willing to work within stricter HMO guidelines to keep your insurance rates more manageable.

When shopping for individual health, dental or Medicare Advantage plans, you'll typically have both HMOs and PPOs to choose from. Each option includes different features to help you pick the plan that works best for you.

HMO
PPO
Average premium$461$502
Low or no deductible
Non-emergency out-of-network services covered
Specialist visits allowed without a referral

Along with this information, the plan’s health care network. could also play a part in your decision. Before you enroll in any program, you may want to consult with your doctors or review plan documents to check whether your providers accept the insurance.

How does an HMO work?

An HMO contracts with a network of primary care doctors and other health professionals and pays them a set fee to offer services to its members. By managing health care costs, the HMO can pass the savings on to members in the form of lower premiums.

In an HMO, your primary care physician — or family doctor — is typically your first contact when you need medical care. If your PCP determines that you need a specialist, they’ll usually refer you to one within the HMO network. Some specialized services, such as mammograms, do not require referrals.

HMO advantages

HMO disadvantages

  • Lower out-of-pocket costs: Along with lower monthly bills, HMOs typically have no or very low deductibles. Routine doctor visit copays for HMOs are also very affordable — usually between $5 and $25 per appointment.
  • Easier billing: Billing is generally more straightforward with an HMO, since there is no need for partial billing of out-of-network services.
  • Ease of care: Having a PCP to coordinate health services generally makes managing health care easier.

HMO advantages

  • Lower out-of-pocket costs: Along with lower monthly bills, HMOs typically have no or very low deductibles. Routine doctor visit copays for HMOs are also very affordable — usually between $5 and $25 per appointment.
  • Easier billing: Billing is generally more straightforward with an HMO, since there is no need for partial billing of out-of-network services.
  • Ease of care: Having a PCP to coordinate health services generally makes managing health care easier.

HMO disadvantages

  • Network limitations: Except for emergencies, you must receive care within the HMO network. You are responsible for the full cost of all other out-of-network services.
  • PCP and referrals required: You need to designate a doctor who will be responsible for your primary health care needs. Your PCP also must be part of the network. Except for certain preventive care, such as mammogram screenings, your PCP must refer you for all specialist visits. For example, if you go directly to a rheumatologist without a referral, you’ll pay the full cost out of your own pocket.

How does a PPO work?

A PPO has a health care network but is less restrictive than an HMO regarding where you receive care. With a PPO, you are free to use providers within and outside the network, but you’ll pay more for out-of-network services. This cost-sharing approach helps PPOs offer flexible coverage at affordable rates.

One main difference between HMO and PPO plans is that with a PPO, you do not need to select a PCP or get a referral before seeing a health care specialist. However, your insurance company may require prior authorization for specialized care. Before making an appointment, it’s a good idea to contact your PPO to ask about coverage.

PPO advantages

PPO disadvantages

  • No network limitations: You are not limited to using network providers. However, except for emergency care, you will pay more for services received outside the plan’s network.
  • No PCP required: You do not need to choose a PCP to coordinate health care or provide specialty referrals.
  • No referrals required: You are not required to obtain a referral before seeing a specialist.

PPO advantages

  • No network limitations: You are not limited to using network providers. However, except for emergency care, you will pay more for services received outside the plan’s network.
  • No PCP required: You do not need to choose a PCP to coordinate health care or provide specialty referrals.
  • No referrals required: You are not required to obtain a referral before seeing a specialist.

PPO disadvantages

  • Higher monthly payments: PPO rates are often higher than HMO plans.
  • Higher costs for medical care: Many PPOs charge deductibles, coinsurance and higher copays than HMO plans.

Another cost difference with a PPO might be the out-of-pocket maximum. These limits are generally higher for out-of-network care, so it takes longer to reach the point where those services are covered in full.

For example, a PPO may have one maximum of $7,000 for in-network care and a combined amount of $10,000 for in- and out-of-network services. In this case, you would need to pay $10,000 out of your own pocket before any services received outside the plan network would be covered at 100%.

HMO vs. PPO dental plans: How are they different?

The differences between HMO and PPO dental plans are almost identical to those in HMO versus PPO medical plans. PPO dental plans have the same flexibility to work outside of the plan network and do not require a primary dentist or a specialist referral. Like their medical counterparts, HMO dental plans, require you to use network doctors, choose a primary dentist and get referrals for specialty dental care.

HMO and PPO dental and medical plans are also similar in their payment structures when it comes to deductibles, coinsurance and copays.

There is one main difference between a PPO dental plan and PPO medical plans — some PPO dental plans include an annual maximum, which is the most your plan will pay for covered services in a year. Once that limit is reached, you’re responsible for payment of all covered dental services for the rest of the plan year.

For example, if the calendar year limit is $5,000 and your insurer has paid that amount in claims by Aug. 31, you will pay for all covered services received from September through December that year.

HMO vs. PPO: Which is better?

In the end, the best health insurance is the plan that suits your financial and health care needs. If you prefer the flexibility to visit specialists without referrals or to see doctors outside the network, a PPO may be the option for you.

If you’re OK with some network restrictions and working with a PCP to coordinate your care, then a cheap HMO health insurance policy might be the right call. You also may want to consider an HMO if you are in good health and have few medical concerns.

It’s important to remember that the flexibility of a PPO comes at a higher cost than an HMO plan, since you can receive care outside the plan network. This is true whether you obtain coverage through the marketplace or you are looking into a Medicare Advantage PPO versus an HMO plan.

To prepare for your insurance search, you may want to ask yourself some health-related questions:

  • Do you use a specific set of providers, and do they accept the plan?
  • How often will you need specialist care?
  • Will you need out-of-network coverage?
  • Do you have a specific amount budgeted for insurance costs?

Having this information available should help you narrow your options and find the best plan for you or your family.

Frequently asked questions

Why would someone choose an HMO?

People choose an HMO mostly due to cost. HMOs usually have lower monthly rates and medical expenses than PPO plans. Nationally, an HMO costs about $461 per month for a single 40-year-old compared to $502 for a PPO. That's a savings of around $490 per year.

What are the disadvantages of an HMO?

The main disadvantage of an HMO is it is more restrictive than a PPO. With an HMO, you must use network health care providers and get referrals for most specialist care. If you need the flexibility to go outside the plan network and see specialists without referrals, a PPO is a better option. But remember that you'll pay more for that flexibility.

Is HMO or PPO better for dental?

An HMO dental plan is better than a PPO if you want to save on insurance costs. But if you want the freedom to use any dentist or dental specialist and are willing to pay more, a PPO is the better option.

Methodology

Average HMO and PPO rates were developed using 2022 public use files from the Centers for Medicare and Medicaid Services (CMS).

Editorial Note: The content of this article is based on the author's opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.