What's the Difference Between HMO and PPO Health Insurance?

And Which One Should I Choose?

Doctor examining young boy
Alicja Colon/Stocksy United

Most Americans who have health insurance—either through their employer, an individual market plan, Medicare Advantage, or a Medicaid managed care plan—are enrolled in a type of managed care plan. The most common types of managed care plans are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Less common are point-of-service (POS) plans and exclusive provider organizations (EPOs) that combine the features of an HMO and a PPO.

Managed Care Networks

All managed care plans contract with doctors, hospitals, clinics, and other healthcare providers such as pharmacies, labs, x-ray centers, and medical equipment vendors. This group of contracted health care providers is known as the health plan's "network."

In some types of managed care plans, you may be required to receive all your health care services from a network provider. In other managed care plans, you may be able to receive care from providers who are not part of the network, but you will pay a larger share of the cost to receive those services.

Health Maintenance Organizations (HMOs)

If you are enrolled in a health maintenance organization (HMO) you will need to receive most or all of your health care from a network provider. HMOs require that you select a primary care physician (PCP) who is responsible for managing and coordinating all of your health care.

Your PCP will serve as your personal doctor to provide all of your basic healthcare services.

PCPs include internal medicine physicians, family physicians, and in some HMOs, gynecologists who provide basic healthcare for women. For your children, you can select a pediatrician or a family physician to be their PCP.

If you need care from a physician specialist in the network or a diagnostic service such as a lab test or x-ray, your primary care physician (PCP) will have to provide you with a referral.

If you do not have a referral or you choose to go to a doctor outside of your HMO's network, you will most likely have to pay all or most of the cost for that care.

Preferred Provider Organizations (PPOs)

A preferred provider organization (PPO) is a health plan that has contracts with a network of "preferred" providers from which you can choose. You do not need to select a PCP and you do not need referrals to see other providers in the network.

If you receive your care from a doctor in the preferred network you will only be responsible for your annual deductible (a feature of some PPOs) and a copayment for your visit. If you get health services from a doctor or hospital that is not in the preferred network (known as going "out-of-network") you will pay a higher amount. And, you will need to pay the doctor directly and file a claim with the PPO to get reimbursed.

Because PPOs tend to have broader networks and allow members more flexibility to see specialists without a referral, their costs tend to be higher.

In an effort to contain costs, the trend in recent years has been for health insurance carriers—particularly in the individual market—to offer fewer PPO plans and more HMO or EPO plans.

How HMOs and PPOs Differ

The following outline compares some of the features of HMOs and PPOs. These are general rules and you should speak with your human resources office at work or directly with your health plan. If you are in the process of deciding between enrolling in an HMO or PPO, you often can compare the plans by going online to the plans' websites to learn about the available benefits and costs.

Which health care providers must I choose?

  • HMO: You must choose doctors, hospitals, and other providers in the HMO network.
  • PPO: You can choose doctors, hospitals, and other providers from the PPO network or from out-of-network. If you choose an out-of-network provider, you most likely will pay more.

Do I need to have a primary care physician (PCP)?

  • HMO: Yes, your HMO will not provide coverage if you do not have a PCP.
  • PPO: No, you can receive care from any doctor you choose. But remember, you will pay more if the doctors you choose are not "preferred" providers.

How do I see a specialist?

  • HMO: You will need a referral from your PCP to see a specialist (such as a cardiologist or surgeon) except in emergency situations. Your PCP also must refer you to a specialist who is in the HMO network.
  • PPO: You do not need a referral to see a specialist. However, some specialists will only see patients who are referred to them by a primary care doctor. And, some PPOs require that you get a prior approval for certain expensive services, such as MRIs.

Do I have to file any insurance claims?

  • HMO: All of the providers in the HMO network are required to file a claim to get paid. You do not have to file a claim, and your provider may not charge you directly or send you a bill.
  • PPO: If you get your healthcare from a network provider you usually do not need to file a claim. However, if you go out of network for services you may have to pay the provider in full and then file a claim with the PPO to get reimbursed. The money you receive from the PPO will most likely be only part of the bill. You are responsible for any part of the out-of-network doctor's fee that the PPO does not pay.

How do I pay for services in the network?

  • Both HMOs and PPOs typically have deductibles and copayments for doctor's visits and other services such as procedures and prescriptions. But if you're comparing two plans with similar premiums, the HMO is likely to have lower cost-sharing (ie, deductibles and copays) than the PPO.

How do I pay for services out of the network?

  • HMO: Except for emergencies and certain types of care that may not be available from a network provider, you are not covered for any out-of-network services.
  • PPO: If you choose to go outside the PPO network for your care, you will need to pay the provider and then get reimbursed by the PPO. Most likely, you will have to pay an annual deductible and coinsurance. For example, if the out-of-network doctor charged you $200 for a visit, you are responsible for the full amount if you have not met your deductible. If you have met the deductible, the PPO may pay 60 percent, or $120 and you will pay 40 percent, or $80. When you visit an out-of-network provider, the doctor is not required to accept the amount that your insurer deems "reasonable and customary." So you're responsible for the full portion of the bill over and above whatever amount your insurer will pay.

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