HMO or PPO? Three Little Letters Make a Big Difference

Health Insurance

January 22, 2018

When you’re trying to pick a health plan, you may notice that there are different types of plans available, typically spelled out in codes like “HMO” or “PPO.” And if you’re new to health insurance or haven’t really thought about the differences before, these letters might not mean much to you. But plan type matters when it comes to picking healthcare coverage, not only in how much a policy costs but in what it covers as well. There are four main types – HMO, PPO, EPO and POS – with HMO and PPO being the most common. Here’s a quick breakdown of what these letters mean.

Health Maintenance Organization (HMO)

Health maintenance organizations (HMOs) cost less but demand more. Under an HMO, you’ll be required to choose from a limited pool of in-network providers, including a primary care doctor. HMOs offer the least amount of flexibility in terms of provider access, but the upside is that your monthly premiums would be lower. Here are a few things to keep in mind about HMOs:

  • Requires a primary care doctor
  • Must get approval to see a specialist or get testing done
  • Lower premiums with higher out-of-pocket costs

If you have a chronic medical condition or one that requires routine visits to see specialists, HMO plans might be a bad choice for you – unless you live in an area with a lot of specialists and have greater access to care via your network. HMOs depend on network care, and you must see your primary care physician (PCP) before you can see a specialist. Nothing out of network is covered under an HMO, save true emergencies. Those who need a lot of medical care may not benefit from the restricted network and structure of an HMO. On the other hand, those with fewer medical needs could save money by choosing this plan since premiums are lower.

Preferred Provider Organization (PPO)

On the other end of the spectrum are preferred provider organizations (PPOs). This plan type offers the most flexibility when it comes to accessing providers because the plan doesn’t require a primary care doctor, and you can technically see any doctor you want – with a big caveat. Like HMOs, PPOs have a network of providers that they prefer patients to choose from. If you see those approved doctors, your plan will cover its full share. If you go outside of the network, the plan will still pay, but it will be at a much lower rate. Because of its flexibility, a PPO typically costs more than an HMO plan. Here are some things to remember about PPOs:

  • No need for a primary care doctor
  • Can access any specialist or testing without PCP referral
  • Higher premiums but potentially lower out-of-pocket costs

Because you’ll pay more for a PPO, it’s important to consider your medical expenses when choosing a health plan. PPOs offer wider and more generous networks than HMOs, and that privilege is reflected in the higher price tag. If you need a lot of medical care, PPOs offer good value since even out-of-network providers are covered to some extent – just read your plan carefully before assuming any level of coverage.

Exclusive Provider Organization (EPO)

Exclusive provider organizations (EPOs) combine some elements of HMOs and PPOs. Under an EPO, you don’t have to pick a primary care doctor, but you are restricted to network providers. These plans cost less than PPOs and have a broader network than HMOs, sometimes offering customers statewide access to doctors and facilities (as with a PPO). But like HMOs, EPOs do not cover services outside the network except in emergency situations.

Point of Service (POS)

Similar in design to HMOs, point-of-service plans (POS plans) are managed care plans, meaning patients must receive and coordinate care through their primary care doctors. POS plans require you to have a primary doctor. Like a PPO, a POS plan covers both in- and out-of-network providers but prefers for patients to stay inside the network and will cover a higher percentage of care for services inside the network. You must get referrals to see specialists under a POS plan.

High Deductible Heath Plan (HDHP)

The plan types listed above are the most common types that you’ll see whether you’re shopping on an Obamacare marketplace, looking outside the marketplace, enrolling in your employer’s plan options, or working with a broker or agency. But we wanted to mention one additional health insurance plan type that you might see when shopping: high-deductible health plans (HDHPs).

A high-deductible health plan is a traditional insurance plan with a higher-than-normal deductible. For these plans, monthly premiums are lower than other types of health plans, but you’ll pay more out of pocket before the insurance company covers any claims. Many people combine an HDHP with a health savings account (HSA) to offset higher out-of-pocket expenses. The IRS defines an HDHP as a plan with a deductible of at least $1,350 for individuals and $2,700 for families in 2018. Out-of-pocket expenses for these plans are capped at $6,650 for individuals and $13,300 for families.

These common health insurance plans are offered through employers and the private market. Before choosing a particular plan, it’s important to review your family’s needs and financial situation to make sure you’re getting the best bang for your healthcare buck. You not only want premiums that fit in your family budget but also deductibles, copayments and a choice of healthcare providers that best suit your needs.