When shopping for health coverage, it’s important to make sure the plan meets your family’s health needs, lets you see your preferred doctors or specialists, and fits your budget. Generally, you will have a choice between a health maintenance organization (HMO) plan and a preferred provider organization (PPO) plan.
In this article, we explain and compare the following aspects of HMO and PPO plans:
- Advantages and disadvantages of the HMO plan
- HMO plan costs
- Advantages and disadvantages of the PPO plan
- PPO plan costs
- HMO and PPO plans (comparison)
- Other types of health plans (EPO and POS)
- What to consider when choosing health coverage
- What is an HMO plan?
An HMO plan is based on a network of hospitals, doctors, and other health care providers who coordinate care within the network and provide their services for a fee. Many providers in this plan charge based on the number of members, not the number of doctor visits. For this reason, HMO plans are much cheaper than PPO plans. An HMO plan typically covers only care from the plan’s contracted providers, known as “network providers.” If you are covered by this plan, you may need to select a primary care physician to manage your health and refer you to an in-network specialist. Although the most common is that care is kept within the network, HMO plans sometimes refer members to out-of-network specialists if needed care is not within the system. Also, if they need emergency care, members can go to the nearest emergency room.
Advantages of HMO plans
- Compared to PPO plans, the advantages of HMO plans make them a popular option if you have to watch your budget or if you don’t expect to make many doctor visits.
- Monthly premiums are lower, and so are typically your out-of-pocket costs.
- Out-of-pocket costs are lower for most prescription drugs.
- Claims do not need to be filed as often, since medical care is often in-network.
- You have a primary care physician as an advocate to coordinate and manage your care.
Disadvantages of HMO plans
- You must get in-network care unless it is a medical emergency.
- If your current doctor is not part of the HMO network, you will need to choose a new PCP.
- What are the costs associated with an HMO plan?
- Typical costs include deductibles (the amount you must pay before your insurance pays part of your medical bills) and monthly premiums (the amount deducted from your paycheck).
What is a PPO plan?
The structure of a PPO plan gives you more flexibility when choosing your health care providers. Generally, the cost of care is cheaper if you are in-network. But if you prefer to see a doctor outside the network, it’s easier with a PPO plan.
Advantages of PPO plans
If you need the flexibility to visit different health care providers, a PPO plan may be a better choice than an HMO plan.
- You have more flexibility to visit network or out-of-network providers.
- You can almost always see specialists without a referral, even specialists who are not in our network.
Disadvantages of PPO Plans
- Out-of-pocket costs and monthly premiums are typically higher than HMO plans.
- You have more responsibility for managing and coordinating your care without a primary care physician.
What are the costs associated with a PPO plan?
Typical costs for a PPO plan may include higher monthly premiums and out-of-pocket costs. You may also have to pay a deductible before your covered benefits begin. If you visit an out-of-network doctor, you will generally have to pay the full copay, pay the bill for the medical cost, and then file a claim to be reimbursed by the PPO plan.
Which plan is better: HMO or PPO?
This decision should be based on what is most important to you: cost or flexibility. An HMO plan may be right for you if you’re looking for low costs and don’t mind choosing in-network doctors. This plan offers a lower cost with less flexibility in choosing a health care provider. A PPO plan may be right for you if you already have a doctor or team of specialists you want to keep who may not be in your employer’s HMO plan’s network. This plan is generally more expensive than an HMO plan but offers more flexibility.
Other Types of Health Plans
While these are the two most common plans, particularly when it comes to employer-provided health coverage, there are other plans you should be aware of, such as EPO and POS.
An exclusive provider organization (EPO) plan would be a middle ground between HMO and PPO plans in terms of flexibility and cost. With this plan, you usually don’t need a referral to see a specialist. This makes it more flexible than an HMO plan. But, like the HMO plan, there are no out-of-network benefits.
A point of service ( POS ) plan also combines elements of the HMO and PPO plans. In this plan, like an HMO plan, you usually need a referral from a primary care doctor to see a specialist. However, just like in the PPO plan, you can visit non-network health care providers, but at a higher cost.
What to consider when choosing health coverage
When changing jobs and deciding between HMO, PPO, EPO, or POS health plans, the first step is to ask questions. Based on your health care needs and the information above, you can create a list of questions to ask your employer or Human Resources representative. You’ll need to consider things like deductibles and out-of-pocket costs, and whether you want to keep seeing the doctor or team of specialists you currently see. Your potential employer’s Human Resources team will often have a comparison table with details of the specific plans they offer. This is a good way to start.