Health insurance plans are primarily split between PPO plans and HMO plans. It’s important you
understand the difference so you can make the right choice. Managed-care plans look to reduce the
costs of healthcare without sacrificing quality on the way. With a greater need for managed-care
plans, people are increasingly turning to HMO plans and PPO plans. Let’s look at the differences
between a PPO and an HMO.
HMO Vs. PPO
HMO refers to a “Health Maintenance Organization,” while PPO refers to a “Preferred Provider
Organization.” There are distinct differences between the two plans outside of the acronyms. The
key differences between them are the costs, network size, your choice of specialists, and your ability
to seek care and services outside of the standard network.
You should think about the total costs for your healthcare and not just the monthly premiums paid
for your plan. There’s no denying the importance of premiums, but the “out-of-pocket” costs of your
plan can’t be ignored. These costs affect how much you spend on your health insurance and can
quickly add up to be more than the monthly premium.
These extra costs include things such as the copayments, coinsurance, and deductibles of your plan.
Some plans have a maximum for out-of-pocket costs you should be aware of.
Your insurance deductible refers to how much of your own money you have to pay before the
insurance kicks in and covers the rest. Copayments and coinsurance are payments you make after
reaching the deductible.
The “out-of-pocket” maximum refers to the highest amount you’ll personally spend on services over
a year. If your plan has one of these limits, then your insurance covers 100% of the costs once you go
past this limit.
HMO plans tend to have lower premiums than PPO plans, but they have more restrictive provider
networks too. You’ll also need to have a primary care physician (PCP) with an HMO. The difference
between premiums isn’t too significant. A study from 2018 showed that the premiums for a single-
person HMO were $572 on average, while PPO premiums were $596 on average.
Outside of reduced premiums, HMOs also have reduced out-of-pocket costs. You may find an HMO
plan with no deductibles at all. However, keep in mind that you’ll have to cover 100% of the costs if
you seek help from someone outside of the provider network.
Primary Care Physician
HMO plans typically require you to pick a Primary Care Physician for your plan. This physician is
typically part of a hospital system or medical group. HMOs reduce costs by requiring people to get
referrals from their PCP. The idea is healthcare is more efficient with a PCP because requiring a
referral from the same doctor ensures you need the medical care you are requesting.
Deductibles and Copay
You might not have to worry about a deductible with an HMO, but you still need to concern yourself
with copayment fees. These fees apply when making non-preventative doctor visits.
By contrast, a PPO plan allows you to see any healthcare provider within the network, even
specialists, with or without a referral. If your situation requires you to visit specialists regularly, then
a PPO would be better than an HMO. You won’t need to get referrals to visit specialists when you
need them. PPO plans also have fewer restrictions against seeing out-of-network healthcare
Like HMO plans, PPO plans typically require copayments for non-preventative care. This is on top of
the higher premiums and higher annual deductible.
In summary, here are the key differences between the two options;
More flexibility when choosing doctors and hospitals
Fewer out-of-network restrictions
Sometimes covers the costs of seeing an out-of-network doctor or specialist
Easier to find – the majority of healthcare insurance providers offer PPO plans
More affordable thanks to lower premiums and no deductibles
Offers a list of providers, including specialists, but likely won’t cover anything out of this
network. You’ll likely have to cover the full cost if you visit a doctor or hospital out of this
PCP referral required to see specialists for non-emergencies
Less easy to find – only around a third of insurance providers offer HMO plans
Which Insurance Plan is Right For You?
Which insurance plan is right for you often comes down to your medical needs – both your current
needs and your expected future needs. Paying a low monthly premium may seem appealing now,
but you might find you want a lower deductible and more freedom of choice in the future.
One way to decide is to go through the list of in-network providers offered by insurance companies.
Also, take a realistic measure of your current income so you understand how much you can
reasonably afford. Check the availability of HMOs near you and consider whether or not you expect
to need a specialist in the near future. It’s possible you might be unable to find an HMO plan in the
first place, meaning the decision is made for you.