HMO Vs PPO: Which Health Insurance Plan Is Right For You?


Learn The Difference Between An HMO And PPO

Having health insurance is important not just for your personal wellbeing, but also for your financial comfort. Paying for healthcare out-of-pocket can cost you an arm and a leg (maybe even literally), so picking the right health insurance plan can help alleviate your financial burden while covering all your medical needs. Of course, knowing which plan is right for you is the key. The top two health insurance plans are Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO). Both of these plans contract with hospitals and health care professionals to create a network of providers to help control health costs. However, understanding an HMO versus a PPO will help you choose which organization better suits your needs and preferences. So, how are they different? SEE ALSO: Do You Really Need Health Insurance?

HMO: Less Access, Lower Cost

All the doctors and hospitals in an HMO are part of the same network of health care providers. After you choose a primary care provider (PCP) within that network, he or she will serve as your personal doctor and main contact for other services you might need. For example, if you require an out of office procedure or need to see a specialist, you will need a referral from your PCP to see someone who is also within the HMO network. For the most part, HMOs tend to have lower associated costs. If you go with an HMO, your monthly premiums will be low and your out-of-pocket co-payments will be slight. Typically, the price for procedures and services are outlined beforehand, giving you a better idea of what you’ll need to pay. Also, you won’t have to worry about filing an insurance claim, since all providers need to file a claim in order to get paid, and, moreover, may not charge you directly. The main disadvantage of an HMO is the limited control. You have less choice and flexibility in choosing where you want to go for your medical care. Choosing from an approved list of providers is restricting, and if you do decide to get medical care from someone outside of your HMO’s network, including your current physician, you will have to foot the entire cost.

PPO: More Freedom, Higher Cost

Like an HMO, a PPO provides a network of “preferred” providers from which to choose. If you stay within the network, you will only be responsible for co-payments, and, in some cases, a set annual deductible which must be met before your insurance will start covering your medical bills. However, you are not restricted to the network. With a PPO you have a wider range of services available, you are free to go to any medical facility you want without having to pick a primary care provider, and you do not need a referral for other procedures or to see a specialist. There is a price to having such freedom, however, as the monthly premiums and out-of-pocket costs are generally higher than HMOs. If you do choose to go out-of-network, you must pay the provider whatever price they quote before getting a reimbursement from your PPO (usually only at a percentage of the cost), and that’s only if you’ve met your annual deductible. If you have not yet met your deductible, you’ll be the one stuck holding the bill. As opposed to HMOs, PPOs are ideal for those wanting more flexibility and options for their medical care choices. Although taking advantage of such freedom does come at a higher cost, the peace of mind of seeing the provider of your choice can be well worth the price. SEE ALSO: What You Need To Know About The Affordable Care Act Open Enrollment Period

The Affordable Care Act Makes Things Easier

Something else to keep in mind is that thanks to the 2010 Affordable Care Act (ACA), otherwise known as Obamacare, the affordability and controlling costs for insurance coverages have lessened. The ACA regulates health insurance by capping out-of-pocket expenses and requiring all preventative care to be fully-covered without cost to the individual. This reduces what most individuals pay for healthcare. Furthermore, you will no longer require any kind of referral for your child’s PCP or any obstetrical or gynecological care specialists. Insurance companies are also prohibited from requiring higher co-payments, or even a referral, for out-of-network emergency room services. In any case, the underlying difference between an HMO and a PPO comes down to price and access. An HMO will give you less options and more restrictions for a lower price, while a PPO provides a greater freedom at a much higher cost.
Date of original publication:
Updated on: November 10, 2015

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