HMO vs PPO and Why the Difference Matters

Choosing between a Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) is not always an easy decision. One may save you money but limit your options or add inconvenient steps to getting health care for you or your family. Understand these important differences before you choose.

HMO vs PPO

An HMO is essentially a group of doctors who charge a reduced rate to the health insurance company. The insurance company may use other cost reducing tactics in addition to this negotiated rate, such as requiring referrals to a specialist or limiting you to a certain number of covered tests each year. In exchange for these limitations, you gain cheaper health care. You might pay lower deductibles, copays, premiums or all three.

An easy way to remember how a PPO is different is to remember the extra “P” stands for Preferred. In a PPO, the focus is on the medical provider that you prefer, rather than one chosen by the health insurance company. In a PPO, it becomes easier to see your doctor of choice, even when the doctor is outside of the network. You don’t need a referral to see a specialist, which saves you a visit to your primary care doctor when you know that a specialist is needed.

Health Care Insurance Costs

Obviously, these differences cost the insurance company more. The extra cost is passed on to you and other members of the PPO in the form of higher deductibles, copays and premiums. You might also end up losing some of the protections offered in the insurance for your maximum annual out of pocket expense because visits to out of network providers usually do not count towards that total.

Research shows that for Medicare patients, a PPO can cost twice as much as an HMO, depending on the plan. But for workers, PPOs are inexplicably cheaper. You simply will not know which one is cheaper until you get a premium quote and review the out of pocket expenses associated with the plan.

Blurring Lines

HMOs have become increasingly unpopular because of the inconveniences of getting referrals and limitations on certain tests and procedures. To compete with PPOs, more HMOs are easing restrictions on out of network providers. So when you investigate your options, don’t automatically assume the HMO will be too inflexible. Compare services and costs on a case-by-case basis before you decide.