HMO vs. PPO: What’s the Difference?

April 24, 2018
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Category: Benefits

HMo vs. PPO

When it comes to selecting employee health benefits, there are a lot of choices and a lot of abbreviations. The biggest decision for medical coverage is often whether to pick a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO) plan. So, what’s the difference?

HMO vs. PPO: An Overview

By far the biggest difference between the two types of plans is that HMOs have lower costs and PPOs have increased flexibility.

HMOs

HMOs are networks of healthcare providers who have agreed to provide their services at lower prices negotiated by an insurance company. To receive care, patients must designate a provider as their primary care physician (PCP). This PCP oversees all of a patient’s healthcare and acts as a gatekeeper to seeing specialists.

To see specialists, patients must obtain referrals from their PCP. Since HMOs contract with a limited number of providers in a geographic area, insurance carriers won’t pay for healthcare services from out-of-network providers. In exchange for accepting fewer choices, patients with HMO insurance typically pay lower monthly premiums.

PPOs

PPOs are also networks of health providers, but they don’t restrict patients to receiving care in-network. It’s optional to designate a primary care physician, patients make appointments directly with providers, and referrals aren’t required.

PPO insurance plans will cover healthcare services from out-of-network providers—at a percentage of the actual costs. Flexibility comes at a price. Patients with PPO insurance pay higher premiums—often two to four times as much as HMO plans.

HMO vs. PPO

HMO vs. PPO: Examples

How about an example? Meet Harry and Patty, two typical employees, and see which plan they picked.

Harry has an HMO.

Harry values the ease of one-stop shopping. When it comes to medical care, he likes being able to get all his services in a single place. He chose an HMO plan, which features a lower monthly premium compared to a PPO plan.

Harry’s primary care physician is his first-stop for any medical issues that come up. Although he has to make an extra trip to his PCP to get a referral to see a specialist, he prefers this to independently researching providers. Harry never worries about which doctors are in- or out-of-network, but he acknowledges that it can take a long time to get an appointment. This winter, he had an earache, and his PCP referred him to an otolaryngologist. He was seen within a few weeks and paid a $20 copay. Harry never has to fill out claims and paperwork, but he is limited to seeing only providers within his HMO network.

Patty has a PPO.

Patty says you can’t put a price on flexibility. When it comes to medical care, she wants to have the most choice in providers, so she chose a PPO plan. She pays a higher monthly premium compared to an HMO plan, but she considers this a worthwhile tradeoff for access to services.

Although she has a primary care physician, she usually visits just for her annual physical. When she needs to see a specialist, she does her own research and makes an appointment. Last year, her foot was bothering her, and she used Yelp! to select a local in-network podiatrist. She was seen within a few days and paid a $20 copay and 10% of the cost of x-rays. Patty sees an out-of-network therapist, and she pays in full up front. She then submits claims and is reimbursed a percentage of the allowable amount for the service provided.

Which options does your business offer?

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HMO vs. PPO: Comparison

Do you need to designate a Primary Care Physician?

HMO

Yes. Care is coordinated through your PCP.

PPO

No. Choose any provider you want to see.

Do you need a referral to see a specialist?

HMO

Yes. Visit your PCP in order to obtain referrals.

PPO

No. Make appointments directly with specialists.

Are out-of-network providers covered?

HMO

No. Out-of-network providers are not covered

PPO

Yes. Out-of-network providers are covered at a percentage of the actual and accepted costs.

Do you have to fill out claims forms?

HMO

No. There are no claims forms to submit.

PPO

Yes. To get reimbursed for out-of-network services, you’ll have to submit claims.

What’s the cost difference?

HMO

HMO plans typically have lower premiums.

PPO

PPO plans typically have higher premiums.

 

 

 

This post was originally published on March 10, 2016. 

About

Jeremy "Sprout" Brautman is a writer, problem solver, and big fan of growth. When he's not trying to solve problems to help small businesses grow, he can be found developing amenities to increase occupancy at his urban Ladybug Hotel.

Category: Benefits


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