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HMO vs. PPO plans – what are the differences?

Posted: JUL 1, 2019

When you’re searching for jobs or considering a job offer, employer-provided health insurance is an important factor. You want to make sure there’s a plan available that meets your family’s health needs, allows you to see your preferred doctors or specialists, and works with your budget. The most common choice you’ll have is between a health maintenance organization (HMO) plan and a preferred provider organization (PPO) plan.

In this article, we’ll explain and compare the following aspects of HMO and PPO plans:

  • HMO plan advantages and disadvantages
  • HMO plan costs
  • PPO plan advantages and disadvantages
  • PPO plan costs
  • HMO plans versus PPO plans
  • Other types of health plans (EPO and POS)
  • What to consider when choosing a health insurance plan

What’s an HMO plan?

An HMO plan is based on a network of hospitals, doctors, and other health care providers that agree to coordinate care within a network in return for a certain payment rate for their services. Many HMO providers are paid on a per-member basis, regardless of the number of times they see a member. This makes HMO plans a more economical choice than PPOs. An HMO generally only covers care received from the plan’s contracted providers, known as “in-network” providers. When you’re covered through an HMO, you may need to select a primary care doctor to manage your health care and refer you to specialists within the network. While you will typically need to stay within the network for care, HMO plans sometimes refer members to see outside specialists for care that can’t be provided within their HMO system. Members may also seek emergency care from the closest emergency room.

Advantages of HMO plans

The advantages of HMO plans compared with PPO plans make them a popular choice if you’re budget-conscious or if you don’t anticipate many doctor visits.

  • Lower monthly premiums and generally lower out-of-pocket costs.
  • Generally lower out-of-pocket costs for prescriptions.
  • Claims won’t have to be filed as often since medical care you receive is typically in-network.
  • Convenience of having a primary care doctor as your advocate to coordinate and manage your care.

Disadvantages of HMO plans

  • HMO plans require you to stay within their network for care, unless it’s a medical emergency.
  • If your current doctor isn’t part of the HMO’s network, you’ll need to choose a new primary care doctor.

What costs are associated with an HMO plan?

Typical costs associated with HMO plans include deductibles (the amount you must pay before insurance begins contributing to your medical bills) and monthly premiums (the amount taken out of your paycheck).

What is a PPO plan?

A PPO plan is designed to give you more flexibility in choosing which health care providers you see. Care is typically more affordable if you stay in-network. But if you have a doctor you prefer to see, it might be easier to visit him or her with a PPO plan.

Advantages of PPO plans

A PPO plan can be a better choice compared with an HMO if you need flexibility in which health care providers you see.

  • More flexibility to use providers both in-network and out-of-network.
  • You can usually visit specialists without a referral, including out-of-network specialists.

Disadvantages of PPO plans

  • Typically higher monthly premiums and out-of-pocket costs than for HMO plans.
  • More responsibility for managing and coordinating your own care without a primary care doctor.

What costs are associated with a PPO plan?

The typical costs of a PPO plan can include higher monthly premiums and out-of-pocket costs. You may also need to pay a deductible before your coverage benefits begin. If you see an out-of-network doctor, you’ll typically have to pay in full for your copay during the visit, cover the cost of the medical bill, and then file a claim to be reimbursed by your PPO plan.

What are the differences between HMO and PPO plans?

This chart provides a simple comparison between an HMO and a PPO, based on some of the key components of health insurance plans.

HMO PPO

COST

Lower monthly premiums, lower out-of-pocket costs, which may or may not include a deductible

Higher monthly premiums, higher out-of-pocket costs, including deductibles

Network Coverage

In-network only (except for medical emergencies or if care isn’t available in the network)

Flexibility to see providers both in- and out-of-network

Referrals

To see a specialist, a referral from a primary care doctor may be required

None — specialist referrals aren’t required, and you don’t need a primary care doctor

COST

HMO

Lower monthly premiums, lower out-of-pocket costs, which may or may not include a deductible

PPO

Higher monthly premiums, higher out-of-pocket costs, including deductibles

Network Coverage

HMO

In-network only (except for medical emergencies or if care isn’t available in the network)

PPO

Flexibility to see providers both in- and out-of-network

Referrals

HMO

To see a specialist, a referral from a primary care doctor may be required

PPO

None — specialist referrals aren’t required, and you don’t need a primary care doctor

Is an HMO or a PPO plan better?

A decision between an HMO and a PPO should be based on what’s most important to you: cost or flexibility. An HMO plan might be right for you if lower costs are important and you don’t mind choosing your doctors from within the HMO’s network. Think lower cost with less flexibility to choose health care providers. A PPO plan might be right for you if you already have a doctor or team of specialists you want to continue seeing but might not be in your employer’s HMO plan network. A PPO plan is also generally more expensive than an HMO plan. Think higher cost with greater flexibility.

Other types of health plans

While HMO and PPO plans are the 2 most common plans, especially when it comes to employer-provided health insurance, there are other plan types you should know about, including EPO and POS plans.

An exclusive provider organization (EPO) plan is situated between an HMO and PPO in terms of flexibility and costs. With an EPO, you typically don’t need a referral to see a specialist, which makes it more flexible than an HMO. However, like an HMO, there are no out-of-network benefits.

A point of service (POS) plan also blends elements of HMO and PPO plans. Under a POS plan, like with an HMO plan, you usually need a primary care doctor referral to see a specialist. However, like with a PPO plan, you can see out-of-network health care providers but at a higher cost.

What to consider when choosing a health insurance plan

As you’re changing jobs and deciding between HMO, PPO, EPO, or POS health plans, your first step is to ask questions. Based on your health care needs and the information above, come up with a list of questions for the employer or their human resources representative. You should consider things like deductibles and out-of-pocket costs and whether you want to continue seeing your current doctor or team of specialists. Your potential employer’s HR team will often have a chart available that compares the details of the specific plans they offer, and that’s a great place to start.

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