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When you’re looking for health insurance, you want to find a plan that gives you access to the doctors or specialists you need to see, and one that works for your budget. The most common choice you’ll have is between a health maintenance organization (HMO) and a preferred provider organization (PPO).
In this article, we’ll explain:
- How plans work
- Plan costs
- HMO and PPO advantages and disadvantages
- Other types of health plans
- What to consider when choosing a health plan
The differences between an HMO and a PPO
How HMOs work
What is an HMO? In an HMO, a defined network of health care providers (doctors, nurses, and specialists) contract with a health plan to provide care and services at preset, preapproved rates. Your primary care doctor manages your care and refers you to specialists within the network. And some specialty areas of care — like ob-gyn and optometry — are available directly.
You’ll mostly get care inside the network, but HMO plans sometimes refer members to out-of-network specialists when they need additional services. HMO plans also cover medical emergencies, so members can get care from the closest emergency room.
The costs of an HMO plan
HMO plans coordinate care for a set payment rate. That means you typically have:
- Lower monthly premiums (the amount taken out of your paycheck)
- Lower deductibles (the amount you need to pay before your plan begins contributing to your medical bills)
- Lower payments for covered services
Remember: If you have an HMO and get nonemergency care from an out-of-network health care provider, you’ll pay the full cost.
How PPOs work
With a PPO plan, you can see any doctor you want to see — inside or outside the network. Your PPO will have a network of preferred providers, and it will probably cost you less money to see them. But you still have the option to see doctors outside of that group. You can also get specialty care without a referral from a primary care doctor.
The costs of a PPO plan
PPO plans often have higher monthly premiums and out-of-pocket costs than HMO plans. You may also need to pay a deductible before your benefits begin. If you see an out-of-network doctor, you’ll typically have to pay the full cost of your visit and then file a claim to get money back from your PPO plan.
Is an HMO or a PPO plan better?
The best health plan is the one that meets your needs. If you like lower costs and think coordinated care makes things easier, an HMO plan might be a good choice. If you want to continue seeing a doctor or specialist that isn’t in your employer’s HMO network, think about a PPO plan.
Advantages and disadvantages of HMO plans
Advantages
- You pay lower monthly premiums and usually lower out-of-pocket costs, including prescriptions.
- When you get in-network care, you have fewer claims to file.
- Your primary care doctor coordinates your care, which can make it easier to take care of your health.
Disadvantages
- HMO plans require you to stay inside their network for care, unless it’s a medical emergency.
- If your current doctor isn’t part of the HMO’s network, you’ll need to choose a new primary care doctor.
Advantages and disadvantages of PPO plans
Advantages
- You can see providers both inside and outside the network.
- You can visit specialists without a referral, including specialists outside the network.
Disadvantages
- You typically pay higher monthly premiums and out-of-pocket costs than with HMO plans.
- You have more responsibility for managing and coordinating your own care without a primary care doctor.
Other types of health plans
While HMO and PPO plans are the most common health plans, there are other plan types you should know about.
Exclusive provider organization (EPO)
An EPO plan is somewhere between an HMO and PPO in terms of flexibility and cost. You don’t need a referral to see a specialist, but there aren’t any out-of-network benefits.
Point-of-service (POS)
A POS plan also combines different parts of HMO and PPO plans. With a POS plan, you usually need a referral from a primary care doctor to see a specialist. You can also see out-of-network health care providers — but at a higher cost.
What to consider when choosing a health plan
Before choosing a health plan, you need to know your health care and budget needs. Do you want a primary care doctor to coordinate your care? Do you want lower out-of-pocket costs and fewer claims? Once you know the answers to questions like these, you can review the information above and start making your decision.
If you have questions about the plans your employer offers, talk to your employer or a human resources representative. They should have materials that compare the benefits of each plan, which can help you choose the best plan for you and your health.