When choosing health insurance for your company, there are many decisions to make. One of the first may be what type of plan to choose.
If you’re shopping for health insurance, you’ve probably come across the acronyms HMO and PPO. HMO stands for Health Maintenance Organization, and PPO stands for Preferred Provider Organization.
Knowing the difference between HMO and PPO is an important first step to determining which kind of plan is right for your company and employees.
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What’s the difference between HMO and PPO?
The best way to understand the difference between HMO and PPO is to break down how they are structured.
HMOs begin by establishing a network of doctors, hospitals, and other providers. These providers agree to accept payment at a certain lower rates for the services they provide to plan members, which sets costs and keeps them in check.
PPO insurance has a similar structure at the outset. It offers access to a network of doctors and providers who accept payment at a certain rate for members. However, unlike an HMO, a PPO allows patients to access treatment from providers outside of the network. In other words, members of a PPO can see any doctor they want or visit any hospital, although providers outside of the network will tend to cost more.
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Premiums, Copays, and Deductibles
A big question of course is what the plans cost. In general, HMOs have lower monthly premiums. Since the in-network providers all agree on the pricing level for their services, this helps the HMO to keep costs low.
These plans also tend to have lower copays and coinsurance than other health insurance plans. However, it’s important to remember that these lower costs are gained by using in-network providers. The HMO generally won’t cover out-of-network care.
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PPOs on the other hand give members more choice in which providers they see. But with greater flexibility, there tends to be higher costs. Typically, monthly premiums and copays will be higher on these plans than on an HMO.
Additionally, there’s an annual deductible, or an amount the insured member must pay out-of-pocket before the insurance plan kicks in and pays any claims. HMOs often times have no deductible or a low deductible.
That said, PPO members can save money by seeing doctors that are within the PPO network, as out-of-network providers will generally cost more.
Primary Care Physicians and Referrals
Another important aspect of HMO insurance is that many require members to choose a Primary Care Physician (PCP) to manage their overall care. The PCP must be in the HMO’s network, and this doctor will be the provider you see any time you need medical treatment.
If you need to see a specialist, you would first visit your PCP, who would then refer you to an in-network specialist. Or, to put it another way, you may not be covered for a visit to a specialist without that referral from the PCP. Still, the HMO provides an affordable option and can be good for people who don’t mind using a PCP to manage their care.
PPOs do not require members to choose a PCP, and they don’t require referrals to see specialists. Again, PPO members can see any doctor or provider they like, in- or out-of-network.
This flexibility is nice for people who already have a doctor they like and don’t want to switch to someone in-network. It’s also helpful if you’re traveling and need medical attention, because a PPO member is covered if they see a doctor outside of their local network.
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Comparing HMO and PPO
To recap, here’s a chart summarizing the difference between HMO and PPO. Remember that every health insurance plan will vary and it’s important to carefully review each one, but in general, this is how HMOs and PPOs stack up:
If you and your employees want plans that prioritize lower costs, HMO insurance may be a good fit, particularly if people mainly want basic medical care. If your employees prefer more choices and don’t mind paying more for it, a PPO tends to offer greater flexibility.
If you’re looking for affordable health insurance for your team, Justworks can help. Take a look at our benefits and explore the plans we offer access to.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.