Difference Between HMOs and PPOs

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Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) are two common options for obtaining health insurance coverage. Each plan has unique costs and coverage conditions. Both plans have in-network and out-of-network providers, and customers who visit in-network providers pay less. 

Which plan is the best choice for any individual person will depend on your financial status, family size, local access to doctors, and health problems.

HMO Insurance Plans

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HMOs only cover visits with in-network providers, meaning only doctors who have been approved in advance. Customers who see out-of-network providers (doctors who were not approved in advance) pay 100% of the cost out of pocket. Each covered individual must select a primary physician. This is usually a pediatrician, geriatrician, family medicine, or internal medicine doctor, and this doctor handles all physicals and routine doctors visits.

The primary physician, also known as a primary care provider, is a gatekeeper in the sense that the patient needs a referral from the primary physician to see specialists. For example, a patient with gynecological issues could not schedule a gynecologist visit on her own. Rather, she would need to schedule a visit with her primary care physician. Then, that physician would need to refer her to a gynecologist within the HMOs network of approved doctors. 

PPO Insurance Plans

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PPOs have in-network providers. Patients can see any primary physician or specialist within the network without the need to seek a referral first. Customers with a PPO insurance plan save significantly by seeing in-network providers. Patients who choose to visit an out-of-network provider are also eligible for coverage through the insurance policy, but the insurance policy usually covers a smaller portion of the cost than it would with an in-network provider.

A patient with a gynecological health issue can schedule an appointment with a gynecologist without getting a referral from her primary care physician first.  If she visits an in-network provider, insurance will cover 40% of the cost. If she visits the out-of-network provider, the PPO will only cover 20% of the cost. 

HMO vs. PPO Plan Comparison

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HMOs are cheaper, but they offer far less flexibility in the selection of medical providers than PPOs. While PPOs are more expensive, they give patients the ability to see specialists as they please and receive some coverage, albeit reduced, for out-of-network providers.

HMO Costs

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HMO insurance plans are usually less expensive than PPO insurance plans. This means that the monthly cost of this kind of health insurance is usually lower than other plans. Often, these plans have either no deductible or a very low deductible. When there is a deductible with any form of insurance coverage, a policyholder has to pay the deductible amount before the insurance company will pay anything. 

For example, a patient may have a $1,000 bill for an emergency room visit. Under the terms of the insurance plan, the patient is responsible for $250 for every emergency room visit. Suppose the insurance plan has a $5,000 deductible. If the patient had not already paid $5,000 out of pocket for healthcare during the coverage period, the patient would be responsible for their share of coinsurance on the $1,000 bill.

Although rates vary, most HMOs have deductibles that are less than $1,000, and it is very common for HMOs to have no deductible at all. When there is no deductible on an HMO, patients only need to pay the copay for the type of medical provider they are visiting. 

PPO Costs

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PPOs are considered to be a more expensive form of health insurance. Monthly premiums are usually more expensive, and the plans rarely come without a deductible. It is common for annual deductibles for PPO plans to cost more than $1,000. Some PPOs even have deductibles of $7,000 or more, but costs can vary based on insurance rates in the state and the number of individuals included in the policy. If the policyholder chooses to see an out-of-network provider, the coverage will also be more expensive than the usual terms of the plan. 

How to Enroll in HMO and PPO Plans

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The enrollment process for HMOs and PPOs is the same. There are three ways to be eligible for health insurance coverage. A person can be eligible by having a certain job or being a member of a trade organization. Others are eligible for coverage through the Health Insurance Marketplace because they do not have a job that provides coverage. Finally, any person, regardless of whether they are eligible for coverage another way, can purchase their own private health insurance from any health insurance company. 

Enrolling in an HMO or PPO is as simple as applying and paying a premium, but there is a specific time of year to apply. Open enrollment happens annually from November 1st to December 15th. This is an annual period where individuals can start an insurance policy or change their coverage. Outside of the open enrollment period, individuals can sign up for coverage through an HMO or PPO if they qualify for special enrollment. Losing a job, getting married, or gaining a new dependent are a few life events that can trigger a personal special enrollment period. 

Anyone considering an HMO or PPO should carefully consider their personal circumstance and the terms of each policy. Although price and flexibility are the two major differences between these two types of coverage, personal circumstances are a huge consideration.