Difference between HMO and PPO

A health maintenance organization (HMO) and a preferred provider organization (PPO) have several differences. However, many of them offer quite similar services. Often the PPO will cost a little more because it provides greater flexibility in choosing doctors and seeing specialists than does the HMO.

With a PPO, one can see any doctor one wishes, or visit any hospital one chooses, usually within a preferred network of providers. Depending upon the terms of coverage, a doctor or hospital outside the preferred provider list will cost more and the PPO will pay a range of 70-80% of expenses. Conversely, an HMO requires one see only doctors or hospitals on their list of providers.

few exceptions exist. A large HMO like Kaiser Permanente may allow one to use hospitals or specialists that perform a service their contracted doctors and facilities don’t provide. Unless the health situation is an emergency, obtaining services like these usually involve approval processes and may require a great deal of paperwork and red tape.

The HMO generally also requires that one choose a primary care physician, who will direct care and refer patients to approved specialists. Generally the HMO will not, without prior approval, cover medical expenses incurred by seeing someone who is not contracted with the HMO. Usually an HMO will have defined coverage for emergency medical care when one travels outside its coverage area.

In contrast to the HMO, the PPO allows one to see any doctor one wishes. One does not have to designate a primary care physician, and one can usually see any specialist without referral. The PPO offers choice and flexibility, but is often more expensive.

Most PPOs have a preferred provider list, much like the HMO provider list. Usually, seeing someone on the list means less expense. In fact, the PPO basically has an HMO component and network built into it.

A person who chooses to stay within the preferred provider list makes co-payments for services. It almost always costs less to obtain service from a preferred provider or “network” physician or facility. As well, a PPO often has two different sets of deductibles. Deductible payments for preferred providers tend to be much lower than for those out of network.

In some areas, out of network services may also cost more than in network services because the PPO determines “reasonable cost” of a physician or hospital’s fees. In other words, they may cover 80% of the reasonable costs, which means if the physician or hospital charges more than “reasonable cost, one can spend much more than 20% or greater of the bill.

Further, the PPO is quite inflexible about changing rules when it comes to using services outside the network. One is welcome to do so, but will pay a higher price, even if the preferred provider list cannot offer a similar service. However, some prefer the flexibility of the PPO to the limited coverage aspects of the HMO.

Frequently, employees are not really given a choice as to what insurance they can get. However, when given a choice, they usually have the choice between either an HMO or a PPO. Depending upon one’s health needs, and income level, the PPO may ultimately be a better choice because it does provide access to a greater number of doctors and facilities. It is wise to ascertain the number of network physicians and facilities offered in PPO plans. Some HMO plans may be better deals when the HMO contracts with more providers than does a PPO.