HMO vs. PPO: What’s the Difference?

HMO vs. PPO – which health plan is right for you? The biggest difference: HMOs cost less and PPOs have more flexibility. Find out how else they compare.

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HMo vs. PPO

When it comes to selecting employee health benefits, there are a lot of choices and a lot of acronyms. 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 between these two?

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 are networks of healthcare providers who have agreed to provide their services at lower prices negotiated by an insurance company. To receive care, patients generally 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 usually 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 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: 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.

HMO vs. PPO: Comparison

Do you need to designate a Primary Care Physician?


Yes. Care is coordinated through your PCP.


No. Choose any provider you want to see.

Do you need a referral to see a specialist?


Yes. Visit your PCP in order to obtain referrals.


No. Make appointments directly with specialists.

Are out-of-network providers covered?


No. Out-of-network providers are not covered


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

Do you have to fill out claims forms?


No. There are no claims forms to submit.


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

What’s the cost difference?


HMO plans typically have lower premiums.


PPO plans typically have higher premiums.


Well, according to our 2018 SMB health insurance benchmark report, small and midsize businesses are almost twice as likely to offer a PPO than an HMO on a national basis. However, HMOs remain popular in the west, where they were initially created. For answers around Health Savings Accounts (HSAs) or High Deductible Health Plans (HDHPs), download our guidebook below, or schedule a demo today to find out how Zenefits can help!

This post was originally published on March 10, 2016. 

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