Difference Between HMO And PPO

The cost, the extent of the plan network, your access to see specialists, and coverage for out-of-network services are all significant differences between HMOs and PPOs.

Who doesn’t appreciate having options in life? When it comes to medical health insurance, though, the possibilities can rapidly become overwhelming. When looking for health insurance, ensure a plan suits your family’s medical requirements, allows you to see your preferred doctors or specialists, and fits within your budget. A health maintenance organization (HMO) or a preferred provider organization (PPO) plan are the two most common options. But what are the major differences between an HMO and a PPO? Catastrophic plans vs. qualifying health plans: what’s the difference? With several choices available, you may feel a little overwhelmed; nevertheless, there is some good news. Buying health insurance doesn’t have to be complicated; with this article, you can compare a variety of plans and see a summary of benefits for both HMO and PPO policies.

According to the US health care exchange marketplace, people who can afford health insurance but do not purchase it had to fund an Individual Shared Responsibility Payment when filing their 2018 federal taxes. According to the exchange’s website, the cost was also known as a “penalty,” “fine,” or “individual mandate.” The Shared Responsibility Payment scheme is no longer in effect.

Individual health insurance mandates exist in several states, requiring people to have qualified health coverage or paying a levy with their state taxes. If having health insurance is necessary where you live, and you don’t have it or an exemption, you’ll almost certainly be charged a fee when filing your state taxes, but you won’t owe a fee on your federal tax return.

If you don’t have insurance, the cost isn’t applicable, and you won’t require an exemption to avoid paying it. Choosing between an HMO and a PPO to get the greatest healthcare is common. We all have to cope with some kind of illness or ailment at some point in our life. You must be able to make an informed judgment about which plan will best suit your needs.

It is almost unlikely to emphasize the importance of having health insurance. In the event of severe sickness or accident, the rising expense of healthcare might place a person or family in a terrible financial situation. A person can choose between two types of health insurance providers to help them deal with the situation: a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO).

What is a provider network?

The set of healthcare providers (doctors, pharmacies, hospitals, therapists, and so on) whose services are covered by your health insurance plan is referred to as a network. When it comes to picking a primary care provider or a specialist, a more comprehensive provider network means you have more options. This is useful if you require medical attention when you are away from home.

What is a referral?

Various networks have different restrictions about whether or not you can call a professional on your own. Or if your primary care physician is the one who decides if you need to see a specialist. You are free to call and schedule an appointment with anybody you like. However, it’s crucial to note that without your primary care physician’s clearance, a health plan that requires a referral won’t cover the cost of the appointment. You should expect cheaper costs as a result of their acceptance.

What is an HMO?

A person in need of health insurance can choose from a choice of health insurance providers, each with its own set of characteristics. A health maintenance organization (HMO), an insurance structure that provides coverage through a network of physicians, is an insurance provider popular in the health insurance marketplace.

The Health Maintenance Organization Act of 1973 gave birth to the HMO as we know it today. The Act, which was signed into law by former President Richard Nixon, defined HMOs as “a public or private institution structured to provide basic and additional health services to its members.” The law also requires that plans provide basic healthcare to insured individuals in exchange for regular, fixed premiums set “under a community rating.”

An HMO plan is composed of a group of hospitals, doctors, and other healthcare providers who agree to coordinate care within a network in exchange for a set payment rate. Many HMO providers are compensated per member, regardless of how many times they see that person. As a result, HMO policies are less expensive than PPO plans. In most cases, an HMO only covers care provided by the plan’s contracted providers, referred to as “in-network” providers.

If you’re covered by an HMO, you may need to choose a primary care doctor to handle your health care and refer you to specialists within the network. While you should usually stay inside your HMO’s network for care, certain HMO plans will refer members to outside experts for services that aren’t available within the HMO system. Members can also go to the nearest emergency room for help. If you prefer to coordinate your health care through a primary care practitioner (PCP) and are ready to pay a higher deductible in exchange for a cheaper monthly health insurance premium, an HMO may be perfect for you.

A health maintenance organization (HMO) is a formally established public or private institution that offers its members basic and supplemental health care. Contracts with primary care physicians, clinical centers, and specialists help the company ensure its network of health providers. Medical entities that sign contracts with the HMO are compensated for providing a variety of services to the HMO’s members. Because of the agreed-upon payment, an HMO can charge cheaper rates than other types of health insurance while still providing high-quality care from its network.

When selecting whether or not to enroll in an HMO insurance plan, consider the cost of premiums, out-of-pocket costs, any specific medical needs you may have, and whether or not having your own primary care provider is important to you.

What is a PPO?

A preferred provider organization (PPO) is a medical care agreement between doctors and insurance companies. The healthcare institutions and practitioners, known as “preferred providers,” give discounted services to the insurer’s plan customers. While PPOs offer the best benefits when you see an in-network doctor or provider, they also cover out-of-network providers. A PPO plan is designed to give you more options when it comes to choosing your healthcare providers. When you stay in-network, your care is usually less expensive. However, if you have a favorite doctor, a PPO plan may make it easier to see him or her.

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Preferred Provider Organizations (PPOs) are a form of health plan that has a bigger network of doctors and hospitals from which to pick. A PPO plan’s out-of-pocket costs are often higher than an HMO or EPO plan. A PPO health plan is a good option if you’re ready to pay a higher monthly premium in exchange for more choice and freedom in selecting your physician and healthcare options.

A PPO is a managed-care network that includes primary and specialty physicians, hospitals, and other healthcare providers. These specialists have a contract with the insurance company to deliver services to subscribing participants or people who are covered by the insurer’s healthcare plan. They negotiate service costs and timetables, and the agreed-upon pricing is usually lower than their standard rates. In exchange for lower rates, insurers pay a fee to access the PPO’s provider network.

Let’s understand the idea of HMO vs. PPO with a hypothetical scenario.

Assume you have an eye infection and are enrolled with an HMO plan; you wouldn’t go straight to an eye specialist. Instead, you’d go to your PCP (primary care physician) for an examination. If he or she is unable to assist you, they will recommend you to a trustworthy eye specialist in your network.

On the contrary, Mr. Peter is a member of a PPO health plan. Despite the fact that he has a primary care physician, he only sees him once a year for a physical examination. When he needs to see a professional, he conducts his own research before scheduling an appointment. He arranged an appointment with a local in-network podiatrist last month since his foot was troubling him. He made a $30 co-payment as well as 10% of the X-rays cost. He also goes to an out-of-network therapist, who he pays in total upfront. He then files a claim and is compensated for a portion of the expenses.

HMO vs. PPO: What’s the difference between HMO and PPO?

Managed-care programs aim to save money on medical treatment without sacrificing quality. HMO and PPO plans have grown in popularity as a result of the increased demand for managed care plans, which provide coverage regardless of the provider or hospital used.

PPO is for Preferred Provider Organization, and HMO stands for Health Maintenance Organization. Aside from acronyms, the distinctions are significant. The primary distinctions between the two plans are the cost, the size of the plan network, your ability to see experts, and coverage for out-of-network treatments.

When choosing a plan, think about all of your healthcare expenses, not simply the monthly premium you’ll pay to an insurance provider. The monthly premium is significant, but additional charges, commonly grouped together as “out-of-pocket,” can have an impact on your total healthcare spending and can occasionally be greater than the monthly premium. If your plan has an “out-of-pocket” maximum, deductible, copayments, and coinsurance are all “out-of-pocket” expenditures to consider. The term deductible is used for the amount that you must have to pay out of pocket for covered services before the insurance company would pay for anything other than free preventative services like an annual physical.

Copayments and coinsurance are payments you make after you’ve met your deductible for medical services. The term “out-of-pocket” maximum is the amount of money you’ll have to pay out of pocket for covered services in a given year. If your plan provides one, after you reach it, the insurance company will pay for all covered procedures in full.

For many individuals and families, the primary care physician is the major distinction between HMO and PPO. With an HMO, you and your family will have a primary care physician to whom you and your family will attend for the majority of medical services. You’ll need a referral from your primary care physician to see a specialist for any reason, which will require an additional office visit. The trade-off is that HMO plans frequently offer lower premiums, but each plan is different, so looking at plan information on eHealth may help you select between an HMO and a PPO plan.

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Some families or individuals may not value having a primary care doctor as their point of contact for all other medical services; choosing between an HMO and a PPO is highly dependent on the needs of each family or individual. HMO plans, by definition, give you access to a large network of different health care providers that can provide you with their services. A Primary Care Provider (PCP) will be assigned to you and your family from among these health care providers. It’s crucial to remember that your PCP will be in charge of organizing your healthcare services, particularly if you need specialist appointments. If you have to see an in-network specialist, you’ll need a reference from your primary care physician before your insurance pays for the appointment.

Another distinction between HMO and PPO plans is the fee structure. Every form of the non-preventive medical visit is usually subject to copayment fees in HMOs. Members of HMO plans have access to in-network doctors and hospitals. This network is made up of suppliers who give plan members discounted costs while still maintaining high-quality requirements. If you visit an out-of-network provider, however, your HMO plan may not pay the costs of your visit.

A PPO plan, unlike an HMO, allows members to see any health care provider in the insurance company’s network without requiring a referral. Even professionals are subject to the latter rule. This is the best form of a plan for people who need to see specialists on a frequent basis because there are no PCP referral restrictions. There are also fewer limits on seeing providers who are not in your network. Members are also not obligated to select a PCP. Copayments for non-preventive medical care are common in PPO plans, just as they are in HMO plans. Many PPO plans, on the other hand, will have an annual deductible and higher rates.

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Let’s summarize the main differences between HMO and PPO plans for a quick review.

Premiums

Premium expenses with HMOs are often lower, though this varies by plan. PPOs, on the other hand, may charge you extra for your monthly premiums, which also vary per plan. For the ease, accessibility, and independence that PPOs provide, such as a greater choice of hospitals and doctors, PPO prices are higher than HMO premiums. Premiums are higher for plans with the lowest/fewest out-of-pocket expenses, such as those with low deductibles and copayments. The higher premium is due to the insurer bearing a greater share of the associated expenditures. Lower-premium options, on the other hand, result in higher out-of-pocket expenditures for the insured and lower costs for the insurer.

Provider network

A network is a collection of healthcare providers who have agreed to partner with insurance companies to provide discounted services for a specific HMO or PPO plan. They usually consist of general practitioners as well as specialists like dermatologists and chiropractors. No matter what the problem is, you must first see your PCP in order to be covered by an HMO. If they can’t treat you, they will recommend you to another member of the network. In an HMO plan, you can expect maximum insurance coverage if you stay inside your network. When you leave the network, your coverage disappears. With a PPO, you can go to doctors who aren’t in the network and still get coverage, but not as much as if you stayed in the network.

Doctor Choice

To be insured for services in an HMO, you must choose doctors from the network. PPOs, on the other hand, allows you to see doctors who are not registered with the network; however, you may have to pay more out of pocket for services.

Primary care physician

Some HMO plans demand that you select a primary care physician (PCP). A primary care physician is usually affiliated with a medical group or a hospital—HMOs control expenses by limiting referrals to a PCP. The theory is that if one provider coordinates treatment, it will be more efficient because your PCP’s referral ensures the insurance company that specialized care is medically essential.

Deductible and copay

HMOs often impose copayment fees for non-preventive visits, despite the fact that they do not often have any deductible or have a low deductible. A PPO, on the other hand, permits members to see any health care provider in the insurance company’s network, including specialists, without requiring a referral. If your situation necessitates frequent visits to specialists, a PPO is sometimes better than an HMO because no PCP is required for referrals. There are also fewer limits on seeing providers who are not in the network. A PPO plan will likely involve copayments for non-preventive medical care, similar to HMO plans. However, a PPO plan would almost certainly have a higher yearly deductible and premiums.

Claims

Patients in an HMO do not need to file a claim because the insurance company pays the healthcare providers directly. Patients with PPO plans, on the other hand, may be required to pay out-of-network physicians first and later submit a claim to the insurance company for reimbursement.

Prescriptions

The pharmacy locations where one may get their prescriptions filled and insured under the plan are limited, just like the coverage under an HMO is confined to a network. Patients with PPOs can fill their prescriptions practically anywhere, but they will be charged more if they go to an out-of-network drugstore.

Exceptions

During an emergency or for in-network visits to a gynecologist or obstetrician, patients with an HMO plan do not need a referral.

Hospitals & other providers

To be covered by an HMO, all hospitals and other medical services must be provided inside the network. You may be able to use out-of-network hospitals and other medical services if you have a PPO.

HMO vs. PPO: Which insurance plan is better?

The question of which is better has no universal response. It is mostly based on clients’ personal tastes. In the end, HMOs are more cost-effective, but PPOs offer more flexibility and freedom of choice. PPO plans enroll more people than HMO plans, according to statistics. In 2014, 58 percent of employees picked a PPO over an HMO as their employer-provided health insurance plan, while just 13 percent chose an HMO. Despite their popularity, HMO plans receive higher consumer satisfaction ratings, according to a survey done by the National Committee for Quality Assurance. The decision between HMOs and PPOs boils down to cost and convenience.

The most vital determinant to contemplate when choosing between an HMO and a PPO is whether cost or flexibility is more important to you. If reduced prices are important to you and you don’t mind choosing your doctors from within the HMO’s network, an HMO plan might be suitable for you. Consider decreased costs combined with fewer options for healthcare providers. If you are already happy with your doctor’s services or team of specialists that you want to keep seeing, but they aren’t in your employer’s HMO plan network, a PPO plan might be suitable for you. In general, a PPO plan is more expensive than an HMO plan. Consider a higher cost with more flexibility.

Plans with a PPO give patients additional options when it comes to choosing a doctor or a hospital or viewing out-of-network providers; there are often fewer limits. They also cover out-of-network provider visits occasionally. In the 2018 poll, 73 percent of employers that provide health insurance benefits to employees offered PPO plans, while just 37 percent offered HMOs. In contrast, HMO Healthcare plans come with cheaper monthly rates and a minimal or no yearly deductible; they are frequently more affordable. In HMOs, non-emergency requirements usually necessitate PCP referrals to specialists.

They usually include a list of network providers, including specialists — but if you go to a doctor who isn’t on the list, there’s a chance you won’t be covered and will have to bear the total cost of your appointment.

Conclusion

HMO vs. PPO, which is preferable for you, is determined by your existing or anticipated health demands. While paying the lowest monthly premium may appear to be the best option right now, you may prefer more flexibility in the future, such as a lower deductible. Before making a decision, look over a list of in-network carriers in your area. You should also estimate your income realistically, verify HMO availability in your area, and evaluate whether you will need to see any specialists in the future year.

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Licensed brokers can assist you in finding the proper insurance coverage at the right price. They provide a wide choice of insurance policies, as well as licensed representatives in each state that can enable you to find the appropriate plan for your needs. Licensed brokers’ professional expertise and experience will help you receive the best coverage at a cheaper cost than plans available through the marketplace, despite the fact that plan pricing is controlled.

When changing jobs and picking between HMO and PPO health plans, the first thing you should do is ask questions. Make a list of questions for the employer or their human resources representative based on your health care needs and the information above. Consider deductibles and out-of-pocket payments, as well as whether or not you want to keep seeing your present doctor or team of specialists. The HR department of your future company will almost always have a chart that compares the details of the various plans they provide, and that’s a good place to start.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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