What Is The Difference Between an HMO Health Plan And a PPO Health Plan?

Fran
Lucy Lazarony
August 10, 2020

HMO stands for health maintenance organization and PPO stands for preferred provider organization. Both plans have strengths and weaknesses. Which type of health plan is right for you and your family? Let’s look at what sets the plans apart so you can make an informed healthcare decision.

Understanding HMOs

Let’s start with HMOs. A HMO health plan tends to be an affordable health care option as long you don’t mind having your medical care guided by a primary care physician. With HMO health plans, you typically have lower monthly premiums. You also can expect to pay less out of your own pocket for your healthcare.

With HMO plans, all of your healthcare services are coordinated by your primary care physician. You can choose your primary care physician or one can be assigned to you. Want to see a specialist? With a HMO, you must first schedule an appointment with your primary care physician and he or she will then provide a referral to an in-network specialist. With a HMO, you are not able to reach a specialist directly on your own; you need a referral from your primary care physician first.

HMOs don’t offer coverage for care from out-of-network healthcare providers. The only exception to this rule would be for a true medical emergency. So get care from in-network providers as much as possible and do so at the discretion and recommendation of your primary care physician. Any routine care that you choose to get outside of your network will come from your own pocket. So be prepared for the cost if you choose this option. Since HMO plans only allow you to visit in-network providers, it’s likely you’ll never have to file a health insurance claim for the medical services that you receive. This is because your insurance company pays the provider directly. This is a nice advantage of using an HMO for your health plan.

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Understanding PPOs

PPOs tend to have higher monthly premiums in exchange for the flexibility to use providers both in and out of network. And unlike an HMO, you don’t need a referral to contact any of these providers. Out-of-pocket medical costs can run higher with a PPO health plan as well, so they are a more expensive option than an HMO.

With a PPO, you have the flexibility to visit providers outside of your network. However, visiting an out-of-network provider will include a higher fee and a separate deductible. This additional cost is something to consider. Before you go out of network, see if you can find an in-network provider that fits your healthcare needs. With a PPO, you may need to file health insurance claims. In some cases, you will have to pay a doctor for services directly and then file a health insurance claim to be reimbursed for the services covered by your PPO health plan. This is a common scenario when you use services from out-of-network providers.

Medicare also has both PPO and HMO options as do dental plans and vision so it is good to know the type of plan that is best for your family.

Making the Choice

If you are single and you are looking to keep healthcare costs down, an HMO plan may be right for you. Are you happy using only in-network providers for your healthcare services? And are you fine with a primary care physician coordinating your care? If so, a cost-effective HMO plan may be right for you. Does your family have a lot of different specialists that they like to see both in and out of network? The flexibility of a PPO plan may be right for you. Even if you are single if the providers you want are mostly out of network, it is better to choose a PPO plan. It gives you the options you are looking for in a health plan.

All Costs Considered

When choosing a health plan, be sure to look at total healthcare costs and not just the monthly premium. The monthly premium is important but you will want to consider out-of-pocket costs as well. These costs affect your total spending on healthcare and can sometimes be more than your premium. Out-of-pocket costs include the deductible, copayments and coinsurance. The deductible is how much you have to spend for covered medical services before your insurance company begins to pay for services.

Copayments and coinsurance are payments you make when you receive a medical service through your health plan. Not all medical services are going to cost you money. There are free, preventative services available, such as an annual physical.

Check for out-of-pocket maximums. Does the health plan have an out-of-pocket maximum? The out-of-pocket maximum is the most you’ll have to pay personally for covered medical services in a year. After you reach the out-of-pocket maximum, the insurance company will pay 100 percent of covered services. Premiums and out-of-pockets costs for HMO plans are usually lower than a PPO. But the provider network for a HMO is less expansive. In addition with a HMO, you might have a low deductible or even a no deductible health plan. Other than on preventative visits, you will need to pay copayment fees when you make doctors visits with an HMO.

All these cost advantages make HMOs a good choice for someone interested in keeping medical care costs low. They just have to work with a primary care physician and only choose providers from what may be a more limiting network of providers. PPO plans allow members to choose in-network specialists without getting a referral, which saves time and gives patients a bit more freedom of choice for their medical providers. If your medical condition requires regular visits to a specialist, a PPO plan would be right for you. With a PPO plan, you won’t need to get a referral as you would with a HMO plan.

Like HMOs, PPO plans charge copayments for services other than preventative care. And PPO plans will have annual deductibles and higher premiums. So weigh the pros and cons of each type of health plan carefully. Which plan makes the most sense for you and your family? What types of medical services do you and your family use most often? How difficult will it be for you to reach the deductible for each health plan? What are your out-of-pocket expenses?

Add up the financial tally and review your medical wants and needs. Choose the plan that meets your medical needs and offers your family a good price. If choice is more important than anything else, choosing a PPO plan may be right for you. If price is paramount, choosing a HMO plan may be the best option. Choose the plan that is right for you and keep track of your medical services throughout the year. Did this plan truly meet your needs? If not, you can change plans during your company’s open enrollment next year.

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