Health Insurance

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

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

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Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) are managed care insurance programs that provide coverage for basic and specialized health or dental care. There are important differences between HMO and PPO plans as to where you can receive care and how they determine your out-of-pocket expenses. Selecting the right option and following plan guidelines helps you to get the most coverage offered by 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 provider selection. You may need the flexibility of a PPO, which provides freedom of choice but comes with higher out-of-pocket fees. Or you may be willing to work within stricter HMO guidelines to keep your insurance rates more manageable.

If you are researching health or dental insurance options, you may be weighing an HMO plan versus a PPO. The differences between HMO and PPO insurance programs, including Medicare Advantage plans, may play an important part in your decision.

We’ve compiled a brief list of features many people consider when reviewing HMO versus PPO insurance plans. The premiums listed here represent rates for an individual member who is 40 years old.

Average premium$427$517
Low or no deductibleX
Non-emergency out-of-network services coveredX
Specialist visits allowed without a referralX

Along with this information, the plan’s provider 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 see if your providers accept the insurance.

How does an HMO work?

An HMO contracts with a network of primary care and other providers 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 PCP 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 a provider within the HMO network. Some specialized services, such as mammograms, do not require referrals.

Below is a bit more detail on the advantages and disadvantages of HMO plans.

HMO advantages

  • Lower out-of-pocket costs: Along with lower premiums, 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 provider network but is less restrictive than an HMO in terms of 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 for 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.

We’ve broken down some advantages and disadvantages of PPO plans below.

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 out-of-pocket costs: Along with higher premiums and copays, many PPOs charge coinsurance and deductibles. HMO plans generally do not include deductibles or require coinsurance.

Another important cost factor is 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 separate amount of $10,000 for 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 the differences in HMO versus PPO medical plans. PPO dental plans have the same flexibility to work outside of the provider network and do not require a primary dentist or a specialist referral. HMO dental plans, like their medical counterparts, require that you use network doctors, choose a primary dentist and get referrals for specialty dental care.

HMO and PPO dental and medical plans are similar in their payment structures, too, as far as deductibles, coinsurance and copays.

There is one defining 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 of that year.

HMO vs. PPO: Which is better?

In the end, the best health insurance is the plan that suits both 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 okay 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 need 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.

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.