HMOs vs. PPOs: Here’s What You Need to Know
Key takeaways:
HMOs and PPOs have different rules about covering healthcare services delivered by out-of-network providers.
HMOs limit your choice of providers but often have a lower deductible and premiums.
PPOs offer you more flexibility than HMOs in choosing doctors and hospitals.
To choose the health insurance that will give you the most coverage at the best price, it helps to understand the contrasts between the two most common types of health plans: HMOs and PPOs. The main differences have to do with their rules about enrollment eligibility and provider coverage.
What is the difference between an HMO and a PPO?
Health maintenance organization (HMO) plans and preferred provider organization (PPO) plans are types of managed care health insurance.
Of the two, HMOs have clearer boundaries around their benefits. An HMO covers enrollees only if they use the doctors, hospitals, and other healthcare providers in the HMO’s network. Some HMOs also require you to live or work within the plan’s service area.
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HMO plans typically direct you to choose a primary care doctor who is contracted to or employed by the plan. Your primary care physician (PCP) acts as the manager of your healthcare services. When you need to see a specialist, you must first get a referral from the PCP.
With a PPO plan, you have more flexibility in choosing healthcare providers. Your cost-sharing percentages and copays are lower for in-network providers, but most PPOs partially cover out-of-network care as well.
PPO plans rarely require a referral from a PCP for you to see a specialist. You can choose any doctor you like. However, if you visit an out-of-network doctor, hospital, or other healthcare provider, you’ll typically be charged a higher copay or coinsurance rate.
HMO vs. PPO cost
On average, HMOs charge slightly lower premiums than PPOs, according to the Kaiser Family Foundation (KFF). Its 2021 Employer Health Benefits Survey examined premiums for different types of job-based insurance plans. Some of the results are shown in the table below.
|
HMO |
PPO |
||
|
Average monthly premium for… |
Individual coverage |
$663 |
$674 |
|
Family coverage |
$1,862 |
$1,943 |
|
|
Average annual premium for… |
Individual coverage |
$7,958 |
$8,092 |
|
Family coverage |
$22,342 |
$23,312 |
|
Depending on your selected plan type and coverage level, you may also have to pay additional costs, including:
Deductible: This is the total amount you must pay for covered healthcare services each year before your insurance coverage kicks in. Until you meet the deductible, you’ll pay full price for most treatments and procedures. One exception: Plans that comply with Affordable Care Act (ACA) rules will never charge you for certain preventive health services, whether or not you have met your deductible.
Copays: These are fixed charges you pay when you visit a healthcare provider or hospital. Copay amounts vary, according to the service and your plan type. You’re responsible for copays until you reach your out-of-pocket maximum.
Coinsurance: After you meet your deductible, this is your share of the cost of covered services. Let’s say your health insurance plan has 20% coinsurance. For your next medical consultation, your plan allows the doctor’s $100 fee. Your coinsurance amount for that visit would be 20% of $100, or $20.
What are the pros and cons of an HMO?
The main selling point of HMO plans is that they’re inexpensive by comparison. You can pay lower prices for your healthcare as long as you use the services of doctors, hospitals, and other healthcare providers in the HMO plan’s network.
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Often, HMO premiums and deductibles are lower, too. Some HMOs have no deductible at all. According to KFF’s data on employer-based health plans, 43% of HMO enrollees with individual coverage don’t have a deductible. That’s the case for only 15% of PPO enrollees.
If you need a specialist, your PCP refers you to one in the network. This ensures the PCP is aware of all your conditions and treatments and can discuss them with you as a whole.
Even so, HMOs have some drawbacks. One is that you’ll have to pay the full fee to see an out-of-network provider. The only times you can get a break on the price of out-of-network care are these exceptions:
Emergency healthcare
Out-of-area urgent care
Dialysis services performed out of area
Also, HMO plans require you to select a primary care physician within the plan’s provider network. If your current doctors aren’t in the HMO network but you wish to keep seeing them, the HMO won’t cover those visits.
In some areas, networks contain a small share of local providers. This means your options for covered specialist care may be limited. You may also have to wait a long time for an appointment.
HMO advantages
Lower monthly premiums and bills
Less likely to have a deductible
All care aligned, thanks to PCP supervision
HMO disadvantages
Requires reliance on in-network PCP
Service area may have narrow coverage
No out-of-network coverage means limited specialist options
What are the pros and cons of a PPO?
PPOs give you flexibility in choosing healthcare providers. You’re not required to select a PCP from the PPO’s network. You can choose your own specialist without a referral from your primary care doctor.
The PPO will partially cover your visits to your favorite doctors, even if they’re out of network. But keep in mind that you’ll pay less for covered services when you visit providers within the PPO’s network. The price difference depends on the PPO health plan. You may still receive a negotiated rate on an out-of-network provider — or you could get stuck paying the entire bill.
Unlike an HMO, a PPO doesn’t restrict coverage to a specific service area. If you get ill or injured while traveling and must use an out-of-network provider, your PPO plan will probably still pay some of the cost.
PPO advantages
Greater flexibility and choice
No need for specialist referrals
Better coverage while traveling
PPO disadvantages
Higher premiums
More likely to have a deductible
Less-predictable costs
Which is better: HMO or PPO?
The choice of HMO vs. PPO should depend on your particular healthcare situation and requirements.
Are you and your family members healthy, rarely seeing a doctor beyond routine checkups? If so, the limited network of an HMO plan can provide the care you need at a comparatively low price.
On the other hand, if you have chronic or unusual health issues, you may want the flexibility of a PPO. That way, you can choose your own doctors and specialists. If those providers are out of network, though, you’ll pay more per visit.
The bottom line
Before you enroll in an HMO or a PPO, make sure you know each plan’s rules about coverage. Look at deductibles, premiums, and prices for in-network and out-of-network providers. Check to see if your doctors are in the plan's provider network. You can minimize costs in an PPO by using in-network doctors, hospitals, and healthcare providers.
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References
Healthcare.gov. (n.d.). Health insurance plan and network types: HMOs, PPOs and more. U.S. Centers for Medicare and Medicaid.
Kaiser Family Foundation. (2021). 2021 employer health benefits survey.
Medicare.gov. (n.d). Health maintenance organization (HMO). U.S. Centers for Medicare and Medicaid.
Medicare.gov. (n.d.) Preferred provider organization (PPO). U.S. Centers for Medicare and Medicaid.
MedlinePlus. (2019). Managed care.
Pollitz, K. (2022). Network adequacy standards and enforcement. Kaiser Family Foundation.
