Sometimes it seems that there are endless insurance options out there. When it comes to selecting an insurance plan for your health needs, it is crucial to understand every single option available to you.
You may already know a bit about two of the most popular insurance options out there; health maintenance organization (HMO) and preferred provider organization (PPO). If you are considering these options, it is vital to understand what each plan offers, and the main differences between them, before you make a decision.
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What is HMO insurance?
With an HMO plan, you get access to a network of select hospitals and doctors. An HMO plan comes at a great price, but you sacrifice some of your freedom as you must stay within your network. You will not have coverage outside of it. You will only receive coverage if the location and professional you choose to use are within your HMO plan’s network.
HMO plans require you to have a primary care physician (PCP) that you must visit before receiving care from anyone else. If your PCP cannot treat the issue at hand, they will provide you with a referral to see someone who can. If there comes a time when you need to seek care from a specialist, referrals are required within this plan, apart from a few exceptions.
Restrictions you may face with an HMO plan include:
- No coverage if you decide to see a doctor outside of your network
- A limited number of tests and treatments you are allowed
- A given number of visits not to be exceeded
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What is PPO insurance?
With a PPO plan, you still have access to a network, but there is more flexibility. You can choose to use providers beyond this. If you seek care from a professional outside of the network or run into a situation where you have no choice but to visit a hospital outside your network, you will likely still be covered. However, in most of these situations, patients will not receive as much coverage as they might if they remain within their network. As long as they are okay with that, they are free to seek services wherever they want.
With a PPO, there are also fewer rules in that there is no requirement to see a PCP to grab a referral before visiting a specialist or a doctor you prefer. With this plan, you get to make more of your own decisions.
With that in mind, it’s easy to assume that a PPO is a better option. You have fewer hoops to jump through, but there are plenty of other factors to take into consideration as well.
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How do HMO and PPO plans differ?
One big difference between these plans is price
HMO plans typically cost less and have lower monthly premiums. According to Value Penguin, the average 2022 monthly premium for an HMO is $457 ($5,487 annually), while the monthly premium for a PPO is $522 ($6,261 annually).
PPO plans offer more flexibility to select the providers you like. This freedom comes at a slightly higher cost. When seeking help outside of your PPO, it is unlikely that you will receive as much coverage as you would if you stayed within your network. With PPO plans, there tend to be more out-of-pocket costs than you would have with an HMO plan, such as deductibles and copays that have increased over the years.
Whether or not you will need to file a claim
These two plans require different amounts of effort. With an HMO, things are simplified because your provider will be paid directly by the insurance company. There is no reason for you to file a claim. If an emergency arises that requires care outside of your network, you may be reimbursed if you file a claim, but that is not always the case.
With a PPO plan, there are many times when you’d have to file a claim. In most instances, you will need to pay the doctor directly. In this case, you will need to file a claim to be reimbursed. When receiving care outside of your network there is rarely a way to get by without filing a claim.
Regardless of whether or not you’re required to file a claim, you should get in the habit of keeping track of how much you spend. You might be able to deduct medical expenses from your tax return.
One requires the use of a PCP while the other does not
With the majority of the HMO plans out there, using a PCP is necessary. If you do not select a PCP from your network, you will be assigned one. This person will provide you with care and determine where you’ll be able to receive additional care if your situation requires more attention.
With a PPO plan, you will not have to visit a PCP to receive care apart from a few rare cases. Referrals are not required to seek care outside of your network, which simplifies things, but you’ll have to put in the energy to figure out how much will be covered if you choose to do so.
One requires a referral to use a doctor outside of the network
With an HMO, you will not be allowed to receive care outside of your network unless it is an emergency. If you need to visit a specialist or doctor that is not your PCP, you’ll be required to receive a referral. The same goes for prescriptions. With an HMO, if you require medication, you will need to receive your prescription within the network and have it filled by a pharmacy that is also included in the network.
With a PPO, you should have coverage if you seek medical care outside of the network, and you do not need a referral to do so. Instead, you’ll be preauthorized. This will only cover care that is entirely necessary to your wellbeing. If you choose to go outside of your network, this may result in additional deductibles, among other fees. When it comes to medication, you will also be able to fill your prescription at more locations than you would be able to within an HMO.
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How to choose between HMO and PPO?
Selecting the right plan to cover your needs can be a challenge. Both have their unique benefits and drawbacks. The plan you ultimately decide to go with really depends on your individual needs and preferences. PPOs tend to be the most popular option available. 47% of covered workers in 2020 decided to use a PPO, while 13% chose to use an HMO. It is also worth noting that the percentage of people who use HMO plans has decreased in the past few years.
When deciding which plan has more of what you need, it is essential to consider the many differences between these two options.
With an HMO plan, you will save money. You will not have to worry about high premiums, deductibles, or other fees. You have restrictions as far as who you will be able to see, and it is a requirement that you visit with a PCP who can offer a referral if additional expertise is needed. This lowers stress by eliminating the need to file a claim but limits your freedom.
A PPO allows for more flexibility, but you have to file a claim to receive reimbursement for your care. Having to file a claim adds an extra step but enables you to visit providers outside your network, including doctors, specialists, pharmacists, and more. With a PPO, you can make more decisions for yourself and receive at least some coverage in the process.
Other things to consider might be your proximity to professionals within your network. If you have been seeing a particular doctor for years that you would like to continue working with, you should check that they are included in the network if you are leaning towards an HMO plan. Look at your area and figure out which providers, pharmacies, and other medical professionals are available in the network of the plan you are considering. This number might be low according to where you live. If you have limited access, a PPO would likely make more sense and provide you with what you need.
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The bottom line
Everyone has a unique situation that comes into play when selecting the health plan that is the best fit for them. PPO plans are chosen more often than HMO plans, but that does not necessarily mean they are a better option. Take into account the cost you’re willing to pay and how much flexibility you desire to have within your plan. You may find that you would prefer to have a PCP that gets to know you instead of bouncing around between providers.
Now that you understand the many differences between these plans, you should have no problem making an informed decision based on your needs. Remember that just because a program works for one person does not mean it will be right for you. You must analyze all aspects of these options to provide yourself with the essential knowledge to select the right plan for you.
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