What's the Difference Between an HMO and a PPO?
It might be difficult to differentiate between a preferred provider organization (PPO) and a health maintenance organization (HMO) regarding health insurance. You are undoubtedly familiar with HMOs and PPOs and various other acronyms. However, what exactly are they? What is the key difference between the two? And, what is maybe more essential, how can you choose which of these options is the most suitable for you?
To begin, HMO is an abbreviation for "health maintenance organization," and the coverage limits people to a certain set of providers referred to as a "network."
1 PPO is an abbreviation for "preferred provider organization," It gives patients the freedom to choose any doctor they want, regardless of whether that doctor is part of their network.
2 Both health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are examples of managed care, a method used by insurance companies to assist with cost management.
It could seem simple, but one thing to keep in mind concerning health insurance is that there is almost always more to the tale than meets the ear. Keeping the fundamentals in mind, let us investigate methods distinctions between HMOs and PPOs to find out which one of these two options would be most suitable for you and your family.
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Health Insurance and Provider Networks
A network is known as a network of healthcare providers that have entered into a contract with an insurance company to provide their patients with discounted treatments. 3 In most cases, these networks include primary care doctors and other types of specialists, such as dermatologists & chiropractors. In certain cases, this category may also include X-ray facilities, laboratories, and medical equipment suppliers.4
What Is the Difference Between an HMO and a PPO?
The following are the primary distinctions between a PPO plan and an HMO:5
- Patients enrolled in an HMO must consult their primary care physician at all times (PCP). If your primary care physician cannot address the issue, they will refer you to a specialist who participates in your insurance plan. You do not need a referral to consult a specialist if your health insurance is a PPO plan. (There are, however, exemptions for visits to a gynecologist and obstetrician that are considered to be regular or for situations involving an emergency) 6
- If you have an HMO plan, you must get medical care inside the HMO's network of providers. Patients enrolled in a PPO plan still have access to a network of providers but are not required to visit any of the participating doctors. You are free to attend any healthcare professional you feel most comfortable with.
What exactly is the catch, then? If you remain a member of your HMO network, you can be sure that you will get the highest possible insurance coverage for the services provided to you by your plan. Your coverage will end when you leave the area covered by your network. You may go to physicians who are not part of your network if you have a PPO, and you will still get some coverage, but it will not be as much as it would be if you stayed inside your network.
You can see any doctor you choose if you have a preferred provider organization (PPO), so this must be the best option, right? Certainly not in every case. When picking between the two, there are a great many more factors to take into consideration.
Let us talk about a few of them right now.
HMO vs. PPO: Cost Analysis
One main distinction between a health maintenance organization (HMO) and a preferred provider organization (PPO) is the cost of health insurance.
When you have a PPO, the monthly premium for coverage outside your network is often an increased premium. Patients often pay reduced rates with an HMO even if it does not provide coverage for medical services received outside of the HMO's network.
For instance, in 2021, the typical monthly premium for an HMO is expected to be $427 ($5,124 annually), while the typical monthly premium for a PPO is expected to be $517 ($5,628 annually).
In most cases, the out-of-pocket payments associated with an HMO are likely less expensive than those associated with a PPO. When a patient is seen by a provider who is part of an HMO's network, the patient is only responsible for paying a copayment at the time of treatment.
PPOs are known to be somewhat more difficult to understand. They often include deductibles, copayments, or coinsurance payments. Everything is dependent on the plan that you have. This will function the same way as the HMO plans do if your plan is just meant to include copays. At the time of service, you pay the predetermined sum in full. On the other hand, if you have a deductible and coinsurance, you will be responsible for paying a specific proportion of the total cost of services rendered until your deductible has been satisfied. Even if you have met your deductible, you may be required to make a copayment when the treatment is provided.
Consider what factors are more important when choosing between a PPO and an HMO. Do you place a higher value on having a less limited network for treatment, or do you place a higher value on having cheaper premiums and out-of-pocket costs?
What Services Are Covered?
The scope of services that are provided is not standard across all of the available plans. Suppose a plan will be provided on any marketplace established by the Affordable Care Act (ACA). In that case, it is necessary to include preventative care (such as checkups, physicals, or vaccines), emergency services, and maternity care. The 10 most important services are referred to as the fundamental advantages.8
Filing a Claim
A further distinction between a PPO and an HMO is the amount of administrative effort required on both sides of the transaction. Patients who have health insurance via an HMO are exempt from the need that they submit a claim since the insurance company pays the healthcare provider directly.
On the other hand, patients who have PPO coverage may be required to make upfront payments to non-participating providers for any services they get before submitting a claim to their insurance company for reimbursement.4
Filling a Prescription
Users of health maintenance organizations (HMOs) have their choices of doctors and pharmacies limited to a network. Patients are only eligible for coverage if their prescriptions are filled at pharmacies that are part of their insurance network.
On the other hand, patients with PPOs have the freedom to fill prescriptions almost anywhere. When you go to a pharmacy that is not part of your insurance network, on the other hand, you might end up paying extra for the prescription medications you need.9
HMO vs. PPO for Dental
Dental health maintenance organizations (DHMOs) and dental preferred provider organizations (DPPOs) operate in the same manner as traditional HMOs and PPOs. A DHMO will require you to have a primary care dentist, and it will normally come with cheaper out-of-pocket costs. However, it will typically not provide coverage for dental treatment received outside of the network.10
Why Would a Person Choose a PPO Over an HMO?
It is completely up to the person to decide whether they'd be better off with a PPO or HMO plan. The following information is provided in the hope that it may be of use to you as you make your decision:11
- PPO insurance plans have a larger customer base than HMO policies do.
- In the year 2020, 47% of covered employees enrolled in an employer-supplied health insurance plan picked a PPO, but only 13% of covered workers opted for an HMO as their health insurance provider.
- The National Committee for Quality Assurance compiles yearly customer satisfaction ratings of more than one thousand different types of health insurance plans, including HMO and PPO comparisons. The publication of their most current data collection took place in 2019.12
How to Choose an HMO or PPO
When choosing between the two different kinds of insurance coverage, you should think about what factors are most essential to you.
Other Factors
Additionally, you may want to think about the healthcare options that are accessible in your area. You may reside in a more remote part of the country, where fewer doctors are working for HMOs nearby. Another possibility is that your preferred physician does not participate in the HMO network. What happens if you are always on the road and find that you want medical attention when you are away from home? In circumstances like these, you may want to consider going with a PPO because of the flexibility it offers.
On the other hand, some individuals choose to have a primary care physician (PCP) manage all of their healthcare needs, maintain a more comprehensive record of their health history, and provide a more personalized experience of seeing the same doctor at each visit. Having a primary care physician (PCP) who can also act as the family physician is typically useful for large families. In circumstances like these, signing up for an HMO could be the best option.
How to Enroll in an HMO or PPO
In the fall, during the Open Enrollment Period (OEP) for individual health insurance and the Annual Election Period (AEP) for Medicare subscribers, you have the opportunity to sign up for the health insurance plan of your choice. This applies regardless of whether you have chosen an HMO or a PPO.
For example, the OEP schedule for 2021 looked something like this:13
- November 1, 2020 = Start of Open Enrollment. There were preview and registration options for new plans and rates.
- December 15, 2020 = The date to sign up for or modify a plan for coverage that began on January 1, 2021, was this day.
- Additional Deadlines = The OEP deadline was extended in several states.
Keep these dates in mind if you are a Medicare subscriber:14
- October 15 = The start of the Annual Election Period (AEP). You may change from Original Medicare to a Medicare Advantage plan during this period. HMO and PPO choices are available in Medicare Advantage plans. Additionally, you may change or return from a Medicare Advantage plan to Original Medicare.
- December 7 = The deadline to modify your Medicare coverage before it takes effect on January 1 is today.
- January 1 = Your upgraded Medicare benefits start. The Medicare Advantage Open Enrollment Period also started at this time. You may move from a Medicare Advantage plan to Original Medicare during this period.15
- March 31 = The open enrollment period for Medicare Advantage is over. You have until today to add a Part D prescription medication coverage and return to Original Medicare.
HMO vs. PPO: A Brief History
Although the origins of HMOs and PPOs may be found as far back as the early 20th century, it was not until President Richard Nixon approved the Health Maintenance Organization Act in 1973 that HMOs were made an option for employee healthcare plans for certain companies.16
HMOs, provide patients access to preventive services including physicals, mammograms, and vaccines.
There are four kinds of HMOs available today:17
- Network model. This is the standard or default form of HMO in which members are limited to a network of doctors.
- Staff model. Own doctors are employed by this sort of HMO, and they exclusively treat members of the shared HMO. The prevalence of staff models has decreased.
- Group model. A group model resembles a cross between a network model and a staff model. Although the doctors in a group model are not employed directly by the HMO, they do have a contract with the HMO and are paid in bulk by it. The doctors then divide up the HMO's bulk payment among themselves. In a group model, physicians exclusively see HMO members, similar to the staff model.
- Open-panel model. Except for the fact that physicians in an open-panel HMO will also treat patients who are not covered by the HMO, this form of HMO functions similarly to the group model. The primary care provider (PCP) may refer patients to physicians outside of the HMO network and even those patients can still get partial coverage, which is one feature that makes the open-panel model distinct.
The Health Maintenance Organization Act is also credited with having a hand in the development of PPOs. Insurance companies recognized an opportunity to provide consumers with more choices while also gaining greater control over medical expenditures after HMOs were established. PPOs were thereafter introduced. PPOs gained popularity among major firms with several locations around the nation since a complete PPO plan enables more geographic flexibility among the numerous workers.
Additional Options: EPO, POS, FFS, HDHP
There are more health insurance alternatives available than HMOs and PPOs. Several extra insurance plans function in a manner that is similar to the previous one.
EPOs, also known as Exclusive Provider Organizations, provide the same services as HMOs, but unlike HMOs, they do not mandate that all medical treatment be coordinated via a primary care physician, nor do they need patients to get referrals before seeing a specialist. Coverage is restricted to just those physicians who are part of a network, much as in an HMO. On the other hand, EPOs often have more expensive premiums than HMOs do.7
A point-of-service plan, often known as a POS plan, is an additional kind of health insurance plan. A POS has characteristics that are similar to those of both an HMO and a PPO. A primary care physician is needed to participate in a POS plan, just as they are in an HMO. A point-of-service (POS) plan, like a preferred provider organization (PPO), permits coverage outside of the network, but in most cases, it requires a recommendation from the main care physician.18
The greatest liberty and adaptability are afforded by a Fee for Service (FFS) plan, which is also known as an indemnity plan in certain circles. However, the fee for this plan is the highest of any other kind. Patients with FFS have the freedom to pick their primary care doctors and specialists, but they must also be prepared to pay significant out-of-pocket costs and may not always be reimbursed for preventative care treatments. It is possible that if you have this kind of plan, you will have to pay for all treatments out of pocket and then file a claim with your insurance carrier to be reimbursed.19
A High-Deductible Health Plan, often known as an HDHP, has a significant out-of-pocket expense known as the deductible. The benefit of this concession is a decreased monthly premium. Plans provided by employers often combine a high-deductible health plan (HDHP) with a health savings account (HSA). Your contributions to an HSA are not subject to income tax, and the money in the account may be used to cover any medical expenses that come out of your pocket, like deductibles or copayments.19
HMO vs. PPO: The Verdict
Even if they are helpful, the many choices available in health insurance might be confusing. Since our need for medical treatment is not standardized, there is no reason why our health insurance policies should be either. In the end, the main distinction between a PPO and an HMO is whether or not a person prefers to make their own medical decisions.
There is also EPO vs PPO, but that is a topic for a different article we will publish in the near future.
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