HMO vs. PPO — Which Should I Choose?

Making a decision about the best health insurance plan for you or your family is a difficult choice. Between talk of deductibles, copays, coinsurance, and coverage areas, your head is likely swimming. But before you get into the nitty gritty details of a plan, it is important to choose the broad type of plan that makes most sense for you: HMO or PPO. These are the two most common forms of managed care health insurance plans in the United States, and each comes with its own advantages and disadvantages. Knowing the differences between HMO and PPO plans can make your overall health insurance decision much easier.

What Is an HMO?
The acronym HMO stands for health maintenance organization, referring to the insurance company acting as a liaison between you and health providers. In an HMO plan, you pay for the plan; in return, the HMO arranges health care for you and any covered family members. These plans became popular in the late 1970s and are a common way for Americans to receive health insurance.

The major feature of an HMO that you will notice as a consumer is that you must designate a primary care physician (PCP). Usually, this is a family physician, internal medicine physician, or a pediatrician. To be covered by your health insurance, most or all of your health care services must come from an in-network provider. Your PCP has the responsibility of managing your health care needs and coordinating care.

So what does this mean on a practical level? Basically, any time you need to visit a doctor or specialist, you must see your PCP first (except in emergency situations, in which your care is covered). Based on that appointment, your PCP might refer you to a specialist or make treatment recommendations. In general, HMOs have more limited options about who you can see for care. You might have to choose from a relatively limited list of PCPs, reducing the flexibility of this health insurance plan. Furthermore, if you choose to receive care outside of the HMO covered providers, you must pay out of pocket.

One primary advantage of an HMO plan is cost. In general, HMOs cost significantly less than PPO plans. Your monthly premiums will be lower, and most HMO plans do not have a deductible. There may be copays associated with visiting the doctor, depending on the HMO plan you choose.

What Is a PPO?
PPO stands for preferred provider organization. In the case of a PPO, an insurance company has contracted with a network of physicians, hospitals, and other providers. This keeps costs down by allowing the PPO to contract with providers and negotiate lower prices for services than you would be able to achieve on your own.

Unlike in an HMO plan, you do not have to designate a primary care physician (PCP) in a PPO insurance plan. Instead, you have the choice to see a larger variety of physicians and specialists. Seeing someone in the PPO network keeps your costs down; the insurance company pays most or all of the service fees. You may also choose to see a physician outside of the network, although you will pay a larger proportion of the bill.

The key advantage of a PPO plan is flexibility. Unlike an HMO plan, a PPO does not require you to visit a PCP before seeing a specialist. Instead, you can choose a specialist from a list of in-network providers and receive care. If your doctor is out of network but you don’t want to switch providers, a PPO can still cover some of the cost.

Most PPO plans have a deductible (which ranges in size) and may have copays. Additionally, the monthly premiums tend to be higher than in HMOs.

Which Should I Choose?
Choosing an HMO versus PPO depends on your individual needs. If cost is a limiting factor for you, the lower premiums of an HMO may make it the most attractive choice. For individuals who prefer a wider range of doctors to choose from or frequently visit specialists, a PPO plan may be more time and cost effective. Look carefully to compare deductibles, copays, and types of services that are covered; these can vary by insurance provider. With some careful research, you can choose the plan that keeps your family healthy without breaking the bank.