HMO vs. PPO Insurance Plans: What They Are, Key Differences and More

Highlights:

• HMO insurance plans generally offer lower monthly premiums compared to PPO plans. However, coverage is limited to a relatively small network of providers.
• PPOs offer access to a broader range of providers than HMOs, allowing greater access to out-of-network and specialty care. However, PPO coverage is typically more expensive.
• If you're looking to choose between an HMO and a PPO, be sure to consider how your budget, location and care requirements may impact your choice.

Health insurance can be complicated, and it's easy to feel overwhelmed when comparing plans. Here's a straightforward guide to the key differences between two common options: HMO and PPO insurance plans.

What is HMO insurance?

Insurance provided by a health maintenance organization (HMO) limits coverage to medical services inside the plan's provider network. This network consists of certain doctors, hospitals and other providers that are under contract with the HMO to charge certain rates for specific medical services.

HMO plans typically charge lower premiums — the price you pay each month to enroll in a health insurance plan — than you'll pay for other health insurance options. However, the trade-off for these savings is reduced access to care. If you have an HMO plan, you're only covered if you use providers within your network, although there may be exceptions for emergency medical care. You'll pay out of pocket for any out-of-network care. You may also need a referral from your primary care physician (PCP) for any specialized care.

What is PPO insurance?

An insurance plan through a preferred provider organization (PPO) also covers care from a specified network of providers. As with an HMO, members of this network agree to provide care at a certain cost.

However, PPO networks tend to be larger and more flexible than their HMO counterparts and allow you to visit specialists without a referral. PPO plans will also cover out-of-network medical services, though typically at a higher cost than in-network care. You may also be required to file a claim for reimbursement when you go out of network.

In exchange for this increased flexibility, a PPO is typically more expensive than an HMO. For example, you may face higher out-of-pocket costs, monthly premiums and copays.

What's the difference between HMO and PPO plans?

The most noteworthy distinctions between HMO and PPO plans are cost and flexibility:

HMO plans are typically:

• Less expensive. When doctors and hospitals participate in your HMO's provider network, they agree to work at a lower cost. This keeps premiums and out-of-pocket costs down for both the insurer and the insured.
• Less flexible. Except for medical emergencies, your healthcare coverage is restricted to your HMO network, which tends to be limited to a certain geographic area. Plus, any specialized care requires a referral from your PCP. All of these factors reduce your ability to choose the doctors you see and the care you receive.

PPO plans are generally:

• More expensive. Because PPOs offer access to a larger provider network, your monthly costs may be higher. You'll likely need to meet an annual deductible, which is the minimum amount you'll need to spend on medical care before your insurance coverage kicks in. Although PPO plans allow you to receive out-of-network care, you'll pay more and you may need to cover the cost yourself before your insurance company reimburses you.
• More flexible. PPOs give you the freedom to choose the doctors and hospitals you want to visit. You can receive care in and out of your network, and you can see a specialist without a referral from your PCP.

How to choose between HMO and PPO insurance

Both HMOs and PPOs can be great health insurance options, depending on your circumstances. If you're looking to choose between the two, consider how your current budget, care needs and other factors fit with the limitations and benefits of each type of plan.

• Budget. In most cases, HMOs are the more cost-effective option, as they offer lower premiums and out-of-pocket costs. However, it's important to review each plan and compare the monthly premiums, deductibles and copays.
• Care requirements. If you're chronically ill and require frequent specialized care, it may be best to opt for a more flexible PPO. You'll be able to see doctors in and out of your network without a referral. If you're generally young, healthy and don't require regular specialized care, an HMO may adequately meet your needs.
• Location. HMO provider networks are typically limited to a relatively small geographic area, which means you won't be covered if you need medical care when you're out of town. PPO insurance, on the other hand, usually has more wide-ranging coverage and may work well for frequent travelers or those who are likely to need out-of-network care.
• Current providers. Before you enroll in an HMO or a PPO, check to see whether your PCP, specialists and other doctors are included in the plan's network. HMOs typically have more restrictive provider networks than PPOs do.

Whichever type of plan you choose, be careful to read your summary of coverage and benefits carefully before you commit. Choosing the right health insurance coverage for your circumstances, whether it's a PPO or an HMO plan, can provide much-needed peace of mind for you and your family.