Difference between HMO and PPO: Costs, advantages, disadvantages, and more

• An HMO insurance plan is often regarded as being more cost-efficient due to its lower monthly premiums and convenient due to its requirement that patients must have a primary care physician to manage their care.
  
• A PPO insurance plan is known for its flexibility as it allows patients to manage their own care and seek out various providers/​specialists without needing a referral.
• Medicare Advantage plans are available for most Americans aged 65 and over. Similar to general insurance plans, the two primary Medicare Advantage plans are HMO and PPO.
• While HMO and PPO insurance plans continue to be the most common choice for patients to choose from, there are a variety of other insurance options.

An HMO insurance plan is centered around a variety of hospitals and health care providers (referred to as an ​“HMO network”) that have agreed to treat patients within the network’s insurance plan. When selecting an HMO insurance plan, a patient chooses what is known as a ​‘primary care physician’ who will be the doctor that manages their health care and refers them to any other providers they may need to see. A referral is necessary for a patient to see other specialists that are in-network or out-of-network, and often, receiving out-of-network care only occurs in emergency situations. However, this plan offers lower monthly premiums for its customers, making it a cost-efficient insurance option.

Advantages of an HMO plan:

• Low monthly premiums.
• Not as many claims to file due to in-network care.
• The ease of having a primary care doctor to coordinate and manage the care provided.
• Often, lower costs for prescriptions.

Disadvantages of an HMO plan:

• A patient can only see providers within the plan’s network unless they have a referral for an outside specialist, or it’s an emergency situation.

Like an HMO plan, a PPO insurance plan provides a patient with a network (referred to as a ​“PPO network”) of health care providers and hospitals. However, a PPO plan allows a patient to see whichever provider they choose even if they are out-of-network. This plan also lets the patient coordinate their care and manage which providers they would like to see, versus having a primary care doctor.

Advantages of a PPO plan:

• The patient has more flexibility with which providers they choose to see, whether they’re within the plan’s network or out-of-network.
• Most times, there is no need for a referral if a patient cares to see an out-of-network specialist.

Disadvantages of a PPO plan:

• Most likely, higher monthly premiums.
• The patient is responsible for managing their health care, vice a primary care physician being in charge.

Tip: A ​‘provider network’ refers to the list of doctors, specialists, hospitals, etc. that an insurance agency contracts to provide medical services to its plan members. Providers that are ​‘in-network’ refer to the health care workers and hospitals that are listed in the plan. Providers that are ​‘out-of-network’ are health care workers and hospitals that are not included in that list nor have a contract with the chosen insurance plan.

HMO cost

The costs associated with an HMO plan include deductibles, which is the amount a patient must pay before insurance contributions, and monthly premiums, which is the amount taken out of a patient’s paycheck. Typically, the monthly premiums taken out with an HMO plan are lower than a PPO plan’s premiums.

According to the Kaiser Family Foundation 2018 Health Benefits Survey, all firms using an HMO insurance plan paid $572 as the monthly premium on an individual and $1,620 as the monthly premium on a family. Annually, this led to a $6,869 coverage on individuals and $19,445 coverage on families, showing a lower monthly premium in comparison to a PPO plan type.

PPO cost

Deductibles, monthly premiums, and copays are costs commonly associated with a PPO plan. Most times, the monthly premiums are taken out with a PPO plan that is more expensive than an HMO plan’s premiums. Furthermore, if a patient visits an out-of-network doctor, they most likely will have to pay their copay in full, cover the cost of the medical bill, and then file a claim to be reimbursed by their PPO insurance.

According to the Kaiser Family Foundation 2018 Health Benefits Survey, all firms using a PPO insurance plan paid $592 as the monthly premium on an individual and $1,694 as the monthly premium on a family. Annually, this led to a $7,149 coverage on individuals and $20,324 coverage on families, showing a higher monthly premium in comparison to an HMO plan type.

Each patient has different healthcare needs and expectations, so a healthcare plan varies from person to person. When trying to decide which plan is best, there are many factors to consider, with some of the most important being flexibility, cost efficiency, and coordination of care. If it’s flexibility that is most important, then a PPO insurance plan might be a better fit for they allow a patient to have more control over which providers they see and when, regardless of a referral. When looking at cost-efficiency, an HMO plan might be best because, most times, an HMO plan is a more affordable option. Another benefit to an HMO plan is that it requires a patient to have a primary care physician that coordinates their care for them. This means that with a PPO insurance plan, the patient will have to manage their own care and oversee which providers/​specialists they need to visit. In the end, one plan is not considered better than the other. Each insurance plan comes with its own distinct pros and cons that a patient needs to analyze in accordance with their care needs and desires.

Tip: Health insurance plans do not cover dental insurance. For more information on acquiring a dental plan, such as a dental HMO plan, ​‘DHMO plan,’ or a dental PPO plan, ​‘DPPO plan,’ visit this resource.

Once an American (who has been paying Medicare taxes for at least ten years) turns 65, they qualify for the health insurance plan known as Medicare. Medicare also provides insurance for those who have disabilities or younger people who are diagnosed with end-stage diseases. There are four parts of what a Medicare plan can cover: Part A (inpatient/​hospital coverage), Part B (outpatient/​medical coverage), Part C (an alternate way to receive benefits), and Part D (prescription drug coverage). A common insurance plan that competes with Original Medicare is the Medicare Advantage plan because it is commonly referred to as an ​“all in one” bundle. Original Medicare covers Part A and B with the option to add Part D meanwhile;, a Medicare Advantage plan covers Part A, B, and D, vision, dental, hearing, and more with lower out-of-pocket costs.

An HMO Medicare Advantage plan provides a network (referred to as an ​“HMO network”) of health care providers and hospitals to its customers. It’s required for a patient to choose a primary care physician to manage their health care and provide referrals to any providers that are not in the plan’s network, except in the event of an emergency.

Advantages of an HMO plan:

• Lower monthly premium.
• Not as many claims to file due to in-network care.
• The ease of having a primary care doctor to coordinate and manage the care provided.
• Often, lower costs for prescriptions.

Disadvantages of an HMO plan:

• A patient can only see providers within the plan’s network unless they have a referral for an outside specialist, or it’s an emergency situation.

A PPO Medicare Advantage plan also provides a network (referred to as a ​“PPO network”) of healthcare providers and hospitals to its customers. However, unlike an HMO plan, a PPO Medicare Advantage plan allows for more flexibility when seeing out-of-network providers. Therefore, it’s not required to have a referral to see an out-of-network specialist although it may be more expensive and take extra time to get insurance coverage since a patient must file a claim for coverage each time they see an out-of-network provider. Also, unlike an HMO plan, the patient is responsible for maintaining and coordinating their own care instead of having a primary care physician to do it for them.

Advantages of a PPO plan:

• The patient has more flexibility with which providers they choose to see, whether they’re within the plan’s network or out-of-network.
• Most times, there is no need for a referral if a patient cares to see an out-of-network specialist.
• Higher monthly premium.

Disadvantages of a PPO plan:

• Most likely, higher monthly premiums.
• The patient is responsible for managing their health care instead of a primary care provider.

Tip: To find out more about the differences between Original Medicare plans and Medicare Advantage plans, visit this resource.

EPO insurance plan.

An EPO insurance plan, or an ​‘Exclusive Provider Organization’ insurance plan, is often called a plan that is ​“situated between an HMO and PPO.” This is because, like a PPO plan, an EPO does not require a patient to stay in-network for care meaning, no referrals or emergencies are necessary for seeing an out-of-network provider. However, like an HMO plan, there are no out-of-network benefits if a patient chooses to see a provider outside of their health-care network meaning, going out-of-network can be expensive. Although this plan is less widely known, it often provides a much larger network than an HMO.

POS insurance plan.

A POS insurance plan, or a ​‘Point of Service’ insurance plan, is also known to ​“blend elements of HMO and PPO plans.” This is because, like an HMO plan, a POS insurance plan requires a patient to have a primary care doctor that manages their health care and gives them referrals to out-of-network specialists or providers. However, similar to a PPO plan, a POS plan covers out-of-network providers but seeing them will cost more than seeing an in-network doctor.

Medicaid & CHIP insurance plans.

The Medicaid program provides Americans with low to no cost healthcare to individuals/​households that have limited income or disabilities. Alongside Medicaid is a program known as CHIP or ​‘Children’s Health Insurance Program,’ which is a state funded program where patients pay low to no cost healthcare for children and pregnant women who have limited income.

HDHP insurance plan with a combined HSA.

An HDHP insurance plan, or a ​“High Deductible Health Plan,” is known for its ​“low premiums but higher immediate out-of-pocket costs.” When a patient chooses an HDHP insurance plan, there is a deductible they must pay before the insurer begins paying its share of the coinsurance and providing benefits. According to the IRS, the deductible is at least $1,400 for an individual and $2,800 for a family. In order to combat the high deductible cost, it is recommended that a patient contributes to an HSA/HRA or a ​‘Health Savings Account’/’Health Reimbursement Arrangement,’ which employers often contribute to annually as well. This is because, in the event of an emergency where the cost of care will be raised, the patient will have money saved in their HSA to cover those high costs. Another aspect to note about this plan is that it protects the patient from ​“catastrophic out-of-pocket expenses for covered services.” What this means is that, once a patient’s ​“annual out-of-pocket expenses for covered services from in-network providers, including deductibles, copayments, and coinsurance, reaches the predetermined catastrophic limit,” the insurer will cover all costs.

Medicare insurance: SNP.

An SNP, or a ​‘Special Needs Plan,’ provided through Medicare, provides ​“benefits and services to people with specific diseases, certain health care needs, or limited incomes.”