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HMO vs PPO: How Are They Different and Which One to Choose?

HMO and PPO plans are among the most common insurance plans today. The HMO Act in 1973 was the catalyst for the expansion of HMO plans, which were intended to increase patient outcomes and decrease costs through providing care in an established network with lower monthly premiums.

Key takeaways:

PPOs were started in response in the 1980s to allow more consumer choice in healthcare, but they come with a higher price tag.

What is HMO?

A health maintenance organization (HMO) is a plan featuring a group of providers contracted with your insurance plan. Therefore, you must establish your care with a primary care physician (PCP) and notify your insurance company of your PCP choice.

What is PPO?

A preferred provider organization (PPO) offers a larger network of providers. You don’t need to choose a PCP with a PPO plan officially, and you don’t always need a referral to see a specialist provider. You’ll also have some coverage for out-of-network services.

HMO vs PPO: What is the difference?

There are several differences between HMO and PPO plans, including PCP notifications, out-of-network services, costs, and referrals.

Primary care physicians

An HMO requires you to choose a primary care physician. These types of insurance plans require you to designate a primary care physician because they must be able to verify that your PCP is in-network and has a negotiated rate with them. The plan hopes that with your PCP managing as much of your acute and chronic health conditions as possible, they will screen you for any need for specialist care and prevent unnecessary specialist visits.

Medical providers recommend patients always have a PCP, whether they have an HMO or a PPO plan. This is to have continuity of care and to maintain consistent annual physicals and preventive care. However, a PPO doesn’t require that you identify your PCP. Also, if you end up not liking your PCP, you’ll have to change it officially with your HMO plan. Therefore, HMOs limit how many times you can change your PCP per year.

Out-of-network services

A health network is a group of medical providers that have negotiated with the insurance company to provide care at a discount for members of that insurance. It means that a group of providers accepts that insurance plan and those patients receive healthcare according to the plan contract with no additional out-of-network costs.

Reasons you might seek out-of-network services:

  • You have a good relationship with a provider but recently changed insurance plans, and now they are out-of-network.
  • You are looking for a sub-specialist (not just a cardiologist, but a cardiologist with extensive training and research experience on your cardiac condition).
  • A specific provider is a much closer distance to you (especially common in rural areas).
  • You are traveling and need care outside your home area.
  • Personal reasons (LBGTQ+ reasons, religious circumstances, or previous negative experiences with an in-network practice).
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Unfortunately, HMOs don’t usually allow non-emergency out-of-network care. This means you’ll be paying for all of that care out-of-pocket. On the other hand, PPOs do allow some out-of-network care. You will still likely have to pay more than if you saw an in-network provider, but the insurance company will cover some or most of that care. Check with your individual PPO plan to see how they provide out-of-network coverage.

Costs

One of the biggest deciding factors between HMO vs PPO plans is the cost. HMOs are usually the more economical option, but PPOs may give you more value for your money, depending on your individual health status.

HMOPPO
Monthly premium (Medicare Advantage)$350$450
Monthly premium (Marketplace)$600$700
DeductibleOften no deductible$1,200
Copay for a PCP visit$25–$35$30–$45
CoinsuranceOften no coinsurance20%
Out-of-pocket maximum$2,000–$3,000$3,000–$6,000
Out-of-network coverageNoYes

*Plans vary widely depending on the state, insurance company, and plan features. The above are figures based on available data of a single-member HMO vs PPO plan and do not reflect all plans.

Referrals

For referrals, HMOs require you to visit your PCP first before receiving a referral to an in-network specialist. In contrast, PPOs will allow you to schedule directly with a specialist. However, this doesn’t mean you can always go straight to the specialist. Some health systems, like Kaiser Permanente and others, require you to see a PCP first before going to a specialist.

In other cases, a specific specialist might have a policy that their office only accepts appointments once a PCP has referred the patient. Many specialists require PCP referrals first to ensure that the problem can’t be treated at the primary care level and that the patient is seeing the correct specialist. Because it can take months to get an appointment to see a specialist, a PPO may speed up the process if you aren’t blocked from the health system or the individual provider.

What is the difference between dental HMO vs PPO?

Dental HMO and dental PPO plans are sometimes referred to as DHMOs and DPPOs. The pros and cons for each are similar to medical HMO vs PPO plans.

Dental HMOs may be a bit more restrictive of how many tests and visits you can have each plan year in comparison to DPPOs. However, both plans usually cover preventive dental care at 100%.

Preventive dental care typically includes:

  • Your biannual visit
  • Standard teeth cleanings
  • Annual x-ray imaging
  • Dentally necessary sealants or fluoride treatments

For other dental care, like fillings or extractions, most DHMOs require a flat fee, and DPPOs will require that you pay toward your deductible for these procedures. Most DHMOs and DPPOs will cover crowns, bridges, and dentures up to a certain dollar amount. Remember that orthodontic care is listed separately and may require you to pay toward your deductible, and orthodontic benefits vary between plans.

Additionally, DPPOs are more likely to require a waiting period. This is a period between when you sign up for the plan and when you can access your dental benefits. The waiting period often ranges from a few months to a year, but averages around six months.

Which one is better: HMO or PPO?

There is no singular “best” plan between HMOs or PPOs. It entirely depends on your financial and health situation. For example, HMO plans are a more cost-effective option for healthy, low-maintenance individuals. However, PPO plans are possibly more beneficial for travelers or those with more complex health statuses.

Furthermore, HMOs and PPOs are not the only options. There are also EPOs, a great in-between. It can be confusing to remember the differences between HMO vs PPO vs EPO plans. Here’s what to know about EPOs:

  • They usually don’t require you to choose a PCP (similar to PPO).
  • You don’t always need referrals (similar to PPO).
  • You do need to stay in network (similar to HMO).
  • They are more expensive than HMOs, but not more than PPOs.

If deciding between an HMO vs PPO vs EPO, and an EPO is the middle-tier option in terms of costs and benefits.

Does my health insurance provider offer HMO or PPO?

Most Marketplace, Medicare Advantage plans and private health insurance companies offer HMO and PPO options to choose from. If you have employer-sponsored health insurance, they may or may not offer both HMO or PPO options. Often, employer-sponsored health insurance will have one high-deductible option and one HMO or PPO option to choose from.

You elect an HMO or PPO plan at the beginning of your open enrollment period and abide by that insurance contract until the next enrollment period. There are also EPO, POS, and HDHPs available with most insurance providers.

Here are some of the many companies that offer both PPO and HMO plans:

  • Cigna
  • Aetna
  • Blue Cross Blue Shield
  • United Healthcare
  • Kaiser Permanente
  • Humana

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