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What's the Difference Between an HMO and a PPO?
When it comes to health insurance, identifying the differences between an HMO and a PPO can be challenging. You’ve probably heard of HMOs, PPOs, and perhaps some other acronyms. But what are they? What’s the difference between them? And more importantly, how do you decide which is the best one for you?
To start, HMO stands for “health maintenance organization,” and the coverage restricts patients to a particular group of physicians called a “network.” PPO is short for “preferred provider organization” and allows patients to choose any physician they wish, either inside or outside of their network. HMOs and PPOs are both types of managed care, which is a way for insurers to help control costs.
It sounds easy enough, but if there’s one overall fact about health insurance, it’s that there’s always more to the story. What's better, PPO or HMO? Let’s dig into the differences between an HMO, a PPO, and which is the best for you and your family.
Health Insurance and Provider Networks
Let’s first dive into the differences between HMOs and PPOs by addressing networks. A network is a group of healthcare providers that have contracted with insurance companies to offer discounted services for a particular HMO or PPO. These networks typically include general physicians along with specialists such as dermatologists and chiropractors. They may also include labs, x-ray facilities and providers of medical equipment.
Here’s the biggest difference between an HMO and a PPO:
- To receive HMO coverage, you must first see your primary care physician (PCP).* Go to them first, and if the PCP can’t treat you, they’ll refer you to an in-network specialist.
- Under a PPO plan, you’ll still have a network of providers, but you aren’t restricted to seeing just those physicians. You have the freedom to visit any healthcare provider you wish.
*Exceptions: HMO patients do not need a referral during an emergency or for routine-care in-network visits to a gynecologist or obstetrician.
So, what’s the catch? Well, staying in your network with an HMO, you can expect the maximum insurance coverage for the services you receive according to your plan. Go outside of your network and your coverage disappears. With a PPO, you can visit doctors outside of your network and still get some coverage, but not as much as you would if you remained in your network.
So, because a PPO does not restrict you in your choice of physician, a PPO is the way to go, right? Not necessarily. There are many more things to consider when deciding between the two.
Let’s discuss some of those now.
HMO vs. PPO: Cost Analysis
The cost of health insurance is an important differentiator between an HMO and a PPO.
With a PPO, the trade-off for receiving a little bit of coverage outside of your network is usually incurring higher premium costs for the plan. An HMO offers no coverage outside of the network, but patients typically enjoy lower premium costs.
For example, the average monthly premium in 2018 for an HMO was $230 ($2,764 annually) compared to a monthly average of $251 for a PPO ($3,019 annually).
Generally speaking, the out-of-pocket costs for an HMO may be lower than those of a PPO. HMOs typically don’t have annual deductibles and only charge a copay at the time of service when in network.
PPOs can be a little more complicated. They often include deductibles, coinsurance, or copays. It all depends on your plan. If your plan is designed with copays only, this will work just like the HMO plans do. You pay a set amount at the time of service. However, if you have a deductible with coinsurance, you will pay a certain percentage for services until your deductible is met. After your deductible is met, you may still need to make a copayment at the time of service.
When deciding between an HMO or PPO, consider what’s more important to you: lower premium and out-of-pocket costs or a less restrictive network for care?
What Services Are Covered?
The range of covered services varies from one plan to the next. If a plan is offered on any ACA marketplace, it is required to cover preventive care (such as checkups, physicals, or immunizations) as well as emergency services and maternity care. These services are known as the 10 essential benefits.
Filing a Claim
Another difference between an HMO and a PPO is the amount of legwork it takes on both ends. With an HMO, patients do not need to file a claim because the insurance company pays the healthcare provider directly.
Under a PPO, however, a patient must sometimes first pay out-of-network providers for any services received and then file a claim for reimbursement from their insurance company.
Filling a Prescription
Just as the coverage for HMO subscribers is limited to a network, so are the pharmacy locations where one can have a subscription filled and covered under the plan.
PPOs, meanwhile, allow patients to fill a subscription almost anywhere. However, you may pay more for using an out-of-network pharmacy.
HMO vs. PPO for Dental
HMO and PPO plans for dental care—called DHMO and DPPO—work just the same way as regular HMOs and PPOs. A DHMO will require a primary care dentist and usually comes with lower out-of-pocket expenses and typically no coverage outside of the network.
Which Is Better: HMO or PPO?
Choosing an HMO or PPO plan is based on personal preference. Here are some statistics that may help you decide what’s best for you:
- More people are enrolled in PPO plans than HMOs.
- In 2017, 48 percent of workers enrolled in an employer-supplied health insurance plan chose a PPO, compared to just 14 percent of workers who chose an HMO (see chart below).
- Despite the popularity of PPOs, a study of more than 1,300 health insurance plans shows that HMO plans draw better customer satisfaction ratings.
How to Choose an HMO or PPO
When choosing between the two types of insurance policies, choose the following that are most important to you.
HMO vs PPO
Lower out-of-pocket costs, premiums, and deductibles
Need to go through a primary care physician
Can receive at least limited coverage with an out-of-network provider
Can receive at least limited coverage for prescriptions at any pharmacy
Provider or policyholder must file a claim to receive payment of benefits
The bottom line is that an HMO offers a little more affordability while a PPO provides a bit more flexibility.
Additionally, you must take into consideration the available health care where you live. Maybe you live in a rural area, and there are not many physicians within an HMO network nearby. Or, perhaps your favorite doctor is not part of an HMO network. What if you travel frequently and have to see a doctor while out of town? In these cases, you may want to opt for a PPO for the benefit of flexibility.
On the other side of the coin, some people prefer an HMO in order to have a primary care physician who can coordinate health care, keep a more detailed record of health history, and offer the more personal experience of seeing the same doctor for years. Big families often find it beneficial to have a primary care physician who can serve as a family doctor. And of course, who doesn’t like to save a little money?
How to Enroll
There are typically four health deadlines to keep in mind, which will fluctuate slightly from year to year. For example, the 2019 national Affordable Care Act marketplace schedule looks like this:
- November 1 = Open enrollment begins. New plans and prices will be available for preview and enrollment.
- December 15 = Last day to enroll in or change plans for coverage to start on January 1.
- Additional Deadlines = Some states extended the enrollment deadline.
For Medicare enrollees, the deadlines to keep in mind are:
- October 15 = The Annual Election Period opens. During this time you may switch from Original Medicare to a Medicare Advantage plan. Like regular health insurance, Medicare Advantage plans have HMO and PPO options. You may also switch back to Original Medicare from an Advantage plan, or change Advantage plans.
- December 7 = Last day to make changes to your Medicare coverage to start on January 1.
- January 1 = Your new Medicare coverage goes into effect. This is also the beginning of the Medicare Advantage Disenrollment Period, when you may leave a Medicare Advantage plan and switch to Original Medicare.
- February 14 = Medicare Advantage Disenrollment Periods ends. This is the last day you may switch back to Original Medicare and add a Part D Prescription Drug Plan.
HMO and PPO: A Brief History
The roots of HMOs and PPOs can be traced back as far as the early twentieth century, but it wasn’t until 1973 when the U.S. Department of Health and Human Services passed the Health Maintenance Organization Act, encouraging and even requiring select businesses to include HMOs as an option for employee healthcare plans.
HMOs allow patients to take advantage of preventative care such as immunizations, physicals, and mammograms.
Today, there are four different types of HMOs:
- Network model. This is the normal or default type of HMO where subscribers are limited to a network of physicians.
- Staff model. This type of HMO employs its own physicians and those doctors only see the subscribers under the shared HMO. Staff models are no longer as common as they once were.
- Group model. A group model is almost a hybrid between the network and staff models. While the physicians in a group model are not directly employed by the HMO, they are contracted exclusively with and paid in bulk by the HMO. The physicians then distribute the bulk pay from the HMO amongst themselves. Like the staff model, doctors in a group model treat only the subscribers of their HMO.
- Open-panel model. This type of HMO works similarly to the group model, except the doctors in an open-panel model will also treat patients not covered under the HMO. One thing unique to the open-panel model is that the primary care physician can refer patients to doctors outside of the HMO network and those patients can still receive partial coverage.
The history of PPOs can also be traced back to the Health Maintenance Organization Act. Once HMOs were born, insurance companies saw an opportunity to provide patients with more flexibility while giving themselves better control over medical costs. Hence, PPOs were introduced. PPOs rose to popularity among large corporations with many offices spread throughout the country, as a comprehensive PPO plan allows for greater geographical flexibility among the many employees.
Additional Options: EPO, POS, FFS, HDHP
HMOs and PPOs aren’t the only health insurance options. There are some additional insurance plans that operate in a similar fashion.
An EPO, or Exclusive Provider Organization, functions as an HMO but does not require all care to be funneled through a primary care physician, and no referrals are needed to see a specialist.
Just like an HMO, coverage is limited to only doctors within a network. However, EPOs also tend to have higher premiums than HMOs.
Another type of health insurance plan is a POS, or Point of Service. A POS shares some of the qualities of both an HMO and PPO. Like an HMO, a POS requires the use of a primary care physician. And like a PPO, a POS allows for coverage outside of the network but generally with a referral from the primary care physician.
A Fee for Service (FFS) plan, sometimes called an indemnity plan, allows for the most freedom and flexibility, but also comes with the highest price tag. FFS patients can choose physicians and specialists at will but face high out-of-pocket expenses and are not always covered for preventive services. This type of plan may require you to pay for all services and then submit a claim to your insurance company for reimbursement.
As the name suggests, a High-Deductible Health Plan (HDHP) comes with a high deductible. But the tradeoff is a lower monthly premium. Employer-based plans often combine a HDHP with an HSA, or Health Savings Account. An HSA collects non-taxed contributions from your paycheck and uses that fund to pay for out-of-pocket health costs such as copays or coinsurance.
HMO or PPO: The Verdict
The very aspect of health insurance that makes it so difficult to decipher is the same thing that makes it so beneficial to have: options. Our healthcare needs do not come in a one-size-fits-all, so why should our health insurance plans?
Ultimately, the differences between an HMO and a PPO are all about personal choice, and that’s something we can all understand.
Give us a call at (855) 839-8126 today.
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