HMO vs. PPO: Knowing the difference in healthcare plans

Choosing the right health insurance plan for you and your family is a daunting task. With the rising cost of health care, it can be difficult to balance finding an affordable plan and a plan that provides the best possible care. The first step to deciding is understanding how each plan works. In this article, we compare two popular types of plans—HMO vs. PPO—and look at the features of each. 

What is an HMO?

An HMO, which is short for Health Maintenance Organization, is a type of health plan that typically uses primary care physicians (PCPs) to help coordinate their patients’ care. They use a network of doctors, hospitals, and other healthcare providers. When you choose an HMO plan, you pick a PCP from their network. Your PCP usually coordinates your needed medical services, providing referrals for tests and network specialist visits, and typically receiving reports and test results. They do not usually cover out-of-network care, except in emergencies.

What is a PPO?

A PPO, which stands for Preferred Provider Organization, is a type of health plan that also has a network of doctors, hospitals, and other healthcare providers; however, they offer more flexibility when seeking care. They do pay for care for some out-of-network health care services, but they usually do so at a lower rate and the insured individual may be responsible for a portion of the total cost. You do not typically need a referral to see a specialist. 

HMO vs. PPO: What’s the difference?

In addition to the in-network and out-of-network differences associated with HMOs and PPOs, there are different features associated with individual health insurance companies. The following compares some features. 

PPOs have larger networks of providers

Both HMOs and PPOs have a network of doctors, hospitals, and other healthcare providers. Your out-of-pocket costs are less when you use medical providers in this network. 

HMOs typically require you to choose a primary care provider from the network directory. This is often the biggest drawback to the plan—that you are often limited to the number of providers. Additionally, you’ll usually need to see a PCP before seeing specialists. One common exception to referral requirements is gynecologic/obstetric care. You do not need a referral to see these doctors, but they still need to be within your provider network. 

PPO plans have fewer restrictions on their network of providers. You have greater flexibility, and the PPO networks are usually larger than HMOs. Many do not require you to choose a primary care doctor when you sign up for the plan, and they do pay for some out-of-network care, usually with a higher copay or coinsurance rate. There are generally provider tiers, with tier 1 being your in-network providers, tier 2 paid at a lesser amount (and with higher consumer costs), and tier 3 paid at the lowest rate (and with the highest consumer costs).

HMOs have lower out-of-pocket costs

When determining your overall cost of health insurance, you need to include out-of-pocket expenses. These include premiums, deductibles, coinsurance, and copayments. 

Premium

A premium is a set amount you pay per month to have health insurance regardless if you use it that month. Low premium plans usually have higher deductibles and vice versa. If you have health insurance through your employer, this amount is likely deducted from your paycheck and paid to the insurance provider. 

HMOs tend to have lower premiums than PPOs but the difference may not be significant.

Deductible

Annual deductibles are how much you need to spend out of pocket on covered healthcare expenses before the insurance company pays claims. You may have separate deductibles for the medical portion and prescription portion of your plan. Deductibles can be on one part of the plan—such as hospitalization or prescriptions—that must be satisfied before they pay any claims. 

HMOs typically have lower deductibles than other types of plans, including PPOs. Some HMOs do not have any deductibles. 

Coinsurance

Coinsurance is a percentage of medical care costs that you are responsible for paying after you have met your deductible. For example, if you have a 20% coinsurance and receive a doctor’s bill for $1,000, you are responsible for $200, and the insurance company will pay the rest.

HMOs usually do not have coinsurance.

Copay

A copayment, or copay, is a set amount of money you pay when you see a doctor or get a prescription; it often varies based on the healthcare service. For example, when visiting your primary care doctor, your copay might be $20; $40 for a specialist; or $250 for an emergency room visit. Prescription copays are usually tiered based on generic and brand-name drugs. 

HMOs generally require copays for non-preventive care and PPOs require copays for most services. Note: Copays are not applied toward the annual deductible.

Out-of-pocket maximum

Additionally, you should be aware of the plan’s out-of-pocket maximum. If you reach this amount in one year, the insurance company pays your covered services at 100% for the remainder of that calendar year. 

All marketplace plans have out-of-pocket limits. For 2020, the out-of-pocket limit is $8,150 for individuals and $16,300 for families.

Recap: HMO vs. PPO
	HMO	PPO
Cost	Premiums are based on a variety of factors, such as where you live, your age, and whether you have a family plan. In general, HMO premiums are lower than other plans (like PPOs) that give you more flexibility. Additionally, you may pay less for deductibles, copays, and prescriptions with HMOs.	PPO premiums are higher than HMOs. You also typically pay more for out-of-pocket costs like deductibles and copays.
Network	You need to stay within network providers for cost savings.	You have the flexibility of going out-of-network and still getting some healthcare costs covered.
Referrals	You will need a referral to see just about any doctor who is not your primary care doctor.	You do not need referrals to see other doctors/specialists.

Is a PPO better than an HMO?

Based on the flexibility in PPOs, many people choose this type of plan. Forty-four percent of employees enrolled in a PPO, and 19% enrolled in an HMO, according to the 2019 Employer Health Survey. But the better question is, “Which type of plan is best for me?” Both PPOs and HMOs have advantages and disadvantages. The one that is best for you depends on you and your family’s healthcare needs. 

Generally, an HMO might make sense if lower costs are most important and you don’t mind using a PCP to manage your care. However, you should review the plan’s network services first, as some could be quite limited. A PPO may be better if you already have a doctor or medical team that you want to keep but doesn’t belong to your plan network.

Questions to ask when considering an HMO plan include:

• Are my doctors in the HMO network? If not, am I willing to change providers?
• What is the cost of monthly premiums?
• What are the copay costs?
• How often do my family and I go to the doctor? In a typical year, what would my expenses be? 
• Does anyone in my family have serious health conditions or need extensive medical care?
• Am I willing to get referrals when I see a medical provider besides my PCP? 

Questions to ask when considering a PPO plan include:

• Are my doctors in the plan’s network? If not, am I willing to pay a higher coinsurance? 
• Is there a deductible for out-of-network care?
• What is the cost of monthly premiums?
• What would a typical doctor’s visit cost, based on the coinsurance rate?
• Can I estimate my annual out-of-pocket expenses?
• Is there someone in my family that has a medical condition best served by medical providers outside Tier 1 or that we could not see if we were enrolled in an HMO?

What is more expensive: HMO vs. PPO?

Typically, HMOs have lower monthly premiums than PPOs, but the difference isn’t always significant. The following table provides a comparison of average monthly and annual premiums for employer-offered health insurance in 2019, according to the Kaiser Permanente Employer Health Care Survey for 2019. 

	HMO	PPO
Monthly premium (single)	$603	$640
Monthly premium (family)	$1,725	$1,807
Annual premium (single)	$7,238	$7,675
Annual premium (family)	$20,697	$21,683

The chart is based on a nationwide average and does not include what your employer contributes. Your actual payroll deduction could be significantly different for each type of plan. Your Human Resources department can provide you with figures based on the offered plans and company contributions. 

Both Medicare and most insurance companies offer both HMOs and PPOs. If you see a non-traditional medical provider, check to see if the plan covers these services. Non-traditional medical providers include chiropractors, acupuncturists, reflexologists, and massage therapists. Look carefully at exclusions and calculate health care costs during a typical year to help determine which is best for you. 

Ready to enroll?

“If you don’t have insurance through your employer, you want to start at healthcare.gov and see what options are available in your area,” explains Matt Woodley, the founder of creditinformative.com. “There, you can compare options, including HMOs, PPOs, EPOs [Exclusive Provider Organizations], and POS [Point of Service] plans. You should review the summary of benefits for each plan and cross-reference against your and your family’s medical needs. For those with networks, you can verify that your primary doctor is on the list and, if not, eliminate that plan if you do not want to change doctors.”

No matter which plan type you choose, before paying for a prescription, check SingleCare for local prices and a coupon. When you use SingleCare, your medications might be lower than you would pay with insurance.