What’s the difference between an HMO and a PPO?

Health insurance and provider networks

A network is a group of healthcare providers that have contracted with an insurance company to offer discounted services. These networks typically include general physicians and specialists, such as dermatologists and chiropractors. They may also include labs, X-ray facilities, and providers of medical equipment.

What is the difference between an HMO and a PPO?

The biggest differences between an HMO and a PPO plan are:

• Patients in with an HMO must always first see their primary care physician (PCP). If your PCP can’t treat the problem, they will refer you to an in-network specialist. With a PPO plan, you can see a specialist without a referral. (However, there are exceptions for emergencies or routine-care, in-network visits to a gynecologist or obstetrician).
• With an HMO plan, you must stay within your network of providers to receive coverage. Under a PPO plan, patients still have a network of providers, but they aren’t restricted to seeing just those physicians. You have the freedom to visit any healthcare provider you wish.

So, what’s the catch? Well, staying in your network with an HMO, you can expect the maximum insurance coverage for the services you receive according to your plan. Go outside of your network and your coverage disappears. With a PPO, you can visit doctors outside of your network and still get some coverage, but not as much as you would if you remained in your network.

So, because a PPO does not restrict you in your choice of physician, a PPO is the way to go, right? Not necessarily. There are many more things to consider when deciding between the two.

Let’s discuss some of those now.

HMO vs. PPO: cost analysis

The cost of health insurance is an important differentiator between an HMO and a PPO.

With a PPO, the trade-off for receiving a little bit of coverage outside of your network is usually a higher monthly premium. An HMO offers no coverage outside of the network, but patients typically enjoy lower premiums.

For example, the average 2021 monthly premium for an HMO is $427 ($5,124 annually), compared to a monthly average of $517 for a PPO ($5,628 annually).

Generally, the out-of-pocket costs for an HMO may be lower than those of a PPO. HMOs typically don’t have annual deductibles and only charge a copay at the time of service when in network.

PPOs can be a little more complicated. They often include deductibles, coinsurance, or copays. It all depends on your plan. If your plan is designed with copays only, this will work just like the HMO plans do. You pay a set amount at the time of service. However, if you have a deductible with coinsurance, you will pay a certain percentage for services until your deductible is met. After your deductible is met, you may still need to make a copayment at the time of service.

When deciding between an HMO or PPO, consider what’s more important to you: lower premium and out-of-pocket costs or a less restrictive network for care?

What services are covered?

The range of covered services varies from one plan to the next. If a plan is offered on any Affordable Care Act (ACA) marketplace, it is required to cover preventive care (such as checkups, physicals, or immunizations) as well as emergency services and maternity care. These services are known as the 10 essential benefits .

Filing a claim

Another difference between an HMO and a PPO is the amount of legwork it takes on both ends. With an HMO, patients do not need to file a claim because the insurance company pays the healthcare provider directly.

Under a PPO, however, a patient must sometimes first pay out-of-network providers for any services received and then file a claim for reimbursement from their insurance company.

Filling a prescription

Just as HMO-users are limited to a network for providers, the same is true for pharmacies. Patients must have prescriptions filled at in-network locations to receive coverage.

HMO vs. PPO for dental

HMO and PPO plans for dental care—called DHMO and DPPO—work just the same way as regular HMOs and PPOs. A DHMO will require a primary care dentist and usually comes with lower out-of-pocket expenses and typically no coverage outside of the network.

Why would a person choose a PPO over an HMO?

Choosing an HMO or PPO plan is based entirely on personal preference. Here are some facts that may help you decide what’s best for you:

• More people are enrolled in PPO plans than HMOs.
• In 2020, 47% of covered workers enrolled in an employer-supplied health insurance plan chose a PPO, compared to just 13% of covered workers who chose an HMO.
• HMO vs. PPO annual customer satisfaction ratings of more than 1,000 health insurance plans are conducted by the National Committee for Quality Assurance. Their most recent data set was published in 2019.

How to choose an HMO or PPO

When deciding between the two types of insurance policies, consider what may be most important to you.

Other factors

Additionally, you may want to consider the available healthcare where you live. Maybe you live in a rural area, and there are not many physicians within an HMO network nearby. Or perhaps your favorite doctor is not part of an HMO network. What if you travel frequently and need to see a doctor while out of town? In these cases, you may want to opt for a PPO for the benefit of flexibility.

On the other side of the coin, some people prefer to have a primary care physician (PCP) coordinate all their healthcare, keep a more detailed record of health history, and offer the more personal experience of seeing the same doctor each time. Big families often find it beneficial to have a PCP who can serve as a family doctor. In these cases, and HMO might be preferable.

How to enroll in an HMO or PPO

Whether you’ve decided on an HMO or a PPO, you can enroll in the plan of your choice each fall during the Open Enrollment Period (OEP) for individual health insurance or the Annual Election Period (AEP) for Medicare enrollees.

For example, the 2021 OEP schedule looked like this:

1. November 1, 2020 = Open Enrollment began. New plans and prices were available for preview and enrollment.
2. December 15, 2020 = This was the last day to enroll in or change plans for coverage that started January 1, 2021.
3. Additional Deadlines = Some states extended their OEP deadline.

For Medicare enrollees, keep these dates in mind:

1. October 15 = The Annual Election Period (AEP) opens. During this time, you may switch from Original Medicare to a Medicare Advantage plan. Medicare Advantage plans have HMO and PPO options. You may also switch back to Original Medicare from a Medicare Advantage plan or change Medicare Advantage plans.
2. December 7 = This is the last day to make changes to your Medicare coverage for it to start January 1.
3. January 1 = Your new Medicare coverage goes into effect. This is also the beginning of the Medicare Advantage Open Enrollment Period. During this time, you may leave a Medicare Advantage plan and switch to Original Medicare.15
4. March 31 = The Medicare Advantage Open Enrollment Period ends. This is the last day you may switch back to Original Medicare and add a Part D prescription drug plan.

HMO vs. PPO: a brief history

The roots of HMOs and PPOs can be traced back as far as the early twentieth century, but it wasn’t until 1973 when President Richard Nixon signed the Health Maintenance Organization Act, encouraging and even requiring select businesses to include HMOs as an option for employee healthcare plans.

HMOs allow patients to take advantage of preventative care such as immunizations, physicals, and mammograms.

Today, there are four different types of HMOs:

1. Network model. This is the normal or default type of HMO where subscribers are limited to a network of physicians.
2. Staff model. This type of HMO employs its own physicians and those doctors only see the subscribers under the shared HMO. Staff models are not as common as they once were.
3. Group model. A group model is almost a hybrid between the network and staff models. While the physicians in a group model are not directly employed by the HMO, they are contracted exclusively with and paid in bulk by the HMO. The physicians then distribute the bulk pay from the HMO amongst themselves. Like the staff model, doctors in a group model treat only the subscribers of their HMO.
4. Open-panel model. This type of HMO works similarly to the group model, except the doctors in an open-panel model will also treat patients not covered under the HMO. One thing unique to the open-panel model is that the primary care physician (PCP) can refer patients to doctors outside of the HMO network and those patients can still receive partial coverage.

The history of PPOs can also be traced back to the Health Maintenance Organization Act. Once HMOs were born, insurance companies saw an opportunity to provide patients with more flexibility while giving themselves better control over medical costs. Hence, PPOs were introduced. PPOs rose to popularity among large corporations with many offices spread throughout the country, as a comprehensive PPO plan allows for greater geographical flexibility among the many employees.

Additional options:  EPO, POS, FFS, HDHP

HMOs and PPOs aren’t the only health insurance options. There are some additional insurance plans that operate in a similar fashion.

An EPO, or Exclusive Provider Organization, functions as an HMO but does not require all care to be funneled through a primary care physician, and no referrals are needed to see a specialist. Just like an HMO, coverage is limited to only doctors within a network. However, EPOs also tend to have higher premiums than HMOs.

Another type of health insurance plan is a POS, or Point of Service plan. A POS shares some of the qualities of both an HMO and PPO. Like an HMO, a POS requires the use of a primary care physician. And like a PPO, a POS allows for coverage outside of the network but generally with a referral from the primary care physician.

A Fee for Service (FFS) plan, sometimes called an indemnity plan, allows for the most freedom and flexibility, but also comes with the highest price tag. FFS patients can choose physicians and specialists at will but face high out-of-pocket expenses and are not always covered for preventive services. This type of plan may require you to pay for all services and then submit a claim to your insurance company for reimbursement.

As the name suggests, a High-Deductible Health Plan (HDHP) comes with a high deductible. The tradeoff is a lower monthly premium. Employer-based plans often combine a HDHP with an HSA, or Health Savings Account. An HSA collects non-taxed contributions from your paycheck and uses that fund to pay for out-of-pocket health costs such as copays or coinsurance.

HMO vs. PPO: the verdict

Although beneficial, options can make health insurance difficult to decipher. Our healthcare needs do not come in a one-size-fits-all, so why should our health insurance plans? Ultimately, the differences between an HMO and a PPO are all about personal choice.