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HMO Vs. PPO: Which Is Right For You?

Choosing a health insurance plan can be a big decision — you will want to find a healthcare plan that covers your and your family's needs within your budget. If you have specific specialists that you see, take that into consideration when choosing the type of healthplan. The two most common choices are a health maintenance organization (HMO) plan and a preferred provider organization (PPO) plan.

HMO vs PPO: What's the Difference?

The main differences between HMO and PPO plans are:

  1. You need to see a PCP first with an HMO who may refer you to an in-network specialist. PPO plans allow you to skip the PCP and see a specialist independently. 
  2. HMO plans require that you stay within your network for coverage. PPO plans also have a network of providers but give you the freedom to choose to see who you want. 

We've assembled a comparison chart that addresses other frequently asked questions for HMOs and PPOs to show you how these plans differ. It's easier to make an informed decision once you understand the basic features of each plan to see which is right for you. 

Queries

Preferred provider organization (PPO)

Health maintenance organization (HMO)

What is the typical cost?

PPOs typically have higher monthly premiums and out-of-pocket expenses, allowing more flexibility to see out-of-network without referrals.

HMOs generally have lower monthly premiums, out-of-pocket expenses and deductibles. Members would have to pay a copay for in-network office visits.

What is the network size?

PPO networks are larger.

HMO networks are smaller.

Do you have to stay in-network to get coverage?

No

However, it is more expensive to go outside the network.

Yes

Except in emergencies. You would be 100% responsible for any out-of-network non-emergency medical treatment.

Do specialists and procedures require a referral?

No

You can see a specialist or get a procedure without going through a primary care physician for a referral.

Yes

With an HMO, your PCP will provide a referral to an in-network medical specialist.

Do I need a primary care physician?

No

PPO plans do not require a PCP.

Yes

HMO plans do require a PCP to designate your healthcare services.

Will I need to file claims?

Yes

Depending on the circumstances, you may have to pay directly for services and file a reimbursement claim, especially if you go with an out-of-network provider.

No

Since HMOs require you to go with in-network providers, you will commonly never need to file a claim.

If I have an out-of-network medical provider, will I still be able to see them without additional costs? 

Yes

PPO plans give you the flexibility to visit out-of-network providers.

No

HMO plans don't cover out-of-network providers, except for specific medical emergencies.

You need to see a PCP first with an HMO who may refer you to an in-network specialist.

What Is an HMO Insurance Plan?

Health Maintenance Organizations (HMO), are a managed care health insurance plan that typically limits care coverage to doctors who work within the HMO network. HMO costs tend to be lower than other insurance plans, but you may have limited referrals to outside specialists. If you have HMO coverage, your first step is to find a primary care physician or have one picked for you. They will be your go-to doctor for medical needs and questions, and you'll need them to make a referral before seeing a specialist or having lab tests done, in contrast to PPOs. Out-of-network care is usually not covered, except for emergencies. 

While PPOs have more flexibility in coverage, HMOs tend to be more budget-friendly. In fact, HMOs were designed as a low-cost option to traditional medical care models, such as Fee-for-Service plans where you receive coverage no matter where you go. HMOs give you access to healthcare providers and facilities within a network, which is made up of physicians and providers who have agreed to specific rates for members. The only caveat is that this only works for in-network providers, which means that there are restrictions with an HMO. 

Key Takeaways:

  • HMO plans typically require you to select a PCP, who will then be your main point of contact for all your medical needs and for referring specialists or procedures. 
  • Seeing a doctor outside of the HMO network will mean that you will have to pay full medical costs
  • HMO plans tend to have lower premiums, out-of-pocket costs and deductibles (if any)
  • HMO networks are smaller than PPO networks

Why Choose an HMO Insurance Plan Over a PPO Plan?

Members may choose an HMO plan over a PPO plan for lower costs

HMO benefits:

  • Lower monthly premiums
  • Lower out-of-pocket expenses
  • Lower prescription costs
  • Low to no deductible

If you're looking for a cost-effective insurance plan, HMOs can be ideal if you are happy with the doctors in the network and prefer to stay close to home.

PPO plans allow you to skip the PCP and see a specialist independently.

What is a PPO insurance plan?

Preferred Provider Organization, or PPO, is a managed care health insurance plan that offers full coverage if you stay within the network or look for out-of-network doctors. You generally don't need a referral from your PCP to visit any healthcare professional.  PPO plans were designed to give members a network of providers and flexibility when choosing their hospital or doctor. If you decide to see a medical professional outside of your network, your PPO will still cover it at a lower rate. 

Key Takeaways:

  • You can see the doctor or specialist you want without getting approval from your PCP
  • You are covered if you see someone outside the network
  • PPO monthly premiums are higher than HMO, and there is likely a deductible

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Why would someone choose a PPO plan over an HMO plan?

Members may choose a PPO plan over an HMO plan for flexibility

PPO benefits:

  • More flexible
  • Larger network
  • Coverage for both in-network and out-of-network doctors
  • Referrals not needed to see a specialist

You may like the flexibility you get with a PPO plan, but just know that it often comes with higher premiums and out-of-pocket costs. However, you will not have to worry about finding a PCP or getting referrals; you can seek any treatment or specialist you need. You're still covered if you go out-of-network, although the coverage may be lower than if you visit an in-network provider. However, you are responsible for the full cost of healthcare services until you meet the deductible. 

How do you choose an HMO or a PPO?

In addition to the differences regarding flexibility of coverage (in-network and out-of-network), there are a few differences between HMOs and PPOs. Some of the main differences include: 

  • Size of the healthcare provider network
  • Monthly premiums and out-of-pocket costs
  • Access to specialists

As discussed earlier, HMOs can be great as long as you stay in-network. PPOs allow you to see whoever you like, but you may have to pay a little more.

HMO plans require that you stay within your network for coverage.

Compare the Costs

When considering your health insurance plan, you'll want to consider any costs: premiums, coinsurance, deductibles and copayments.

 

HMO

PPO

Premiums

This means the fixed amount you pay monthly; regardless of using insurance that month.

HMOs typically have lower premiums. In 2021, the monthly premium for an HMO was $427.

PPOs typically have higher premiums. In 2021, the monthly premium for a PPO was $517.

Deductibles

Deductibles are what you must pay out-of-pocket before the insurance carrier pays for claims.

HMOs have very low or no deductibles.

PPOs often require deductibles before your coverage begins.

Coinsurance

This is the percentage of medical expenses that you must pay after meeting your deductible. 

HMOs usually do not have coinsurance.

PPOs require coinsurance for most services.

Copay

This is your out-of-pocket cost for an office visit or prescriptions.

HMOs generally require copays for non-preventive medical services.

PPOs require copays for most services.

Maximum Out-Of-Pocket

Most insurance plans have an out-of-pocket maximum. you reach this within one year. The insurance company will cover your services for the remainder of the year.

In 2020, the maximum out-of-pocket limit was $8,150 for an individual plan, and $16,300 for a family plan.

the PPO out-of-pocket maximum is based on your salary.

PPO plans also have a network of providers but give you the freedom to choose to see who you want.

Pros and Cons

When deciding between an HMO or PPO, it's essential to think about what factors are most important to you. To compare the pros and cons, here is a summary to help you:

HMO

PPO

Lower out-of-pocket premiums, deductibles, and expenses

Higher out-of-pocket premiums, deductibles, and expenses

Need to see a PCP

Never need to see a PCP

Cannot easily get limited coverage with an out-of-network provider

Can see anyone in-network or out-of-network

No coverage for out-of-network prescriptions

At least some coverage for out-of-network prescriptions

Does not need to file a claim for reimbursement

Needs to file a claim for reimbursement

Smaller network of providers

Larger network of providers

With either plan, it's more cost-effective to stay in-network, so it's best to check if your preferred doctors are in the plan's network. Given how extensive the network is for a PPO, you may be better off choosing that plan. However, your HMO plan may offer your preferred providers or something similar.

Both plans have advantages and disadvantages, depending on your budget and healthcare needs. If you are more interested in saving money, you may want an HMO, but a PPO may be better if you prefer flexibility.

Additional Factors

An essential factor to consider is having access to medical services where you live. If you live in a rural part of the country that has limited access to doctors in the HMO network, you may need more flexibility. Another factor is if you have already seen a physician for years or have a favorite provider your family loves that is not in-network. Choosing a PPO allows you more room for quality healthcare in these scenarios.

On the flip side, having a primary care physician means that your PCP is fully invested in your healthcare. They are the ones who order your lab tests, read the results, refer you to specialists, and keep a record of your medical history. Families or members who need more than annual check-ups may prefer this to keep track of their health over the years. In this scenario, choosing an HMO would be your best bet.

FAQs

Which is better, HMOs or PPOs?

HMO plans typically have lower premiums. PPO plans often pay higher monthly premiums but allow for flexibility to choose providers within or outside of the network without a referral. Both plans provide outstanding medical care, depending on your family's needs. With both types of coverage, there is a maximum for out-of-pocket expenses (not counting copay and monthly premiums.)  After you reach the maximum, your insurer pays 100% of the costs.

What are the differences between HMOs and PPOs?

The main differences are the plan's costs, how extensive the network is, the access to specialist services and the provision of outside services.

How to enroll in an HMO or a PPO plan

Once you've decided which plan works best for you and your family, you can enroll in your chosen plan every fall during the Open Enrollment Period for individual health insurance coverage. In 2020, Open Enrollment began on November 1st and the last day was December 15th. This may vary by state, as some may extend the deadline.

SmartFinancial can help if you are ready to purchase an individual HMO or PPO plan that meets your budget and healthcare needs. Just enter your zip code and complete a brief questionnaire to receive quotes within minutes. If you have further questions, you can always call us at 855.214.2291.

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