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HMO vs. PPO: Do You Know the Difference?

Written by Lorraine Watkins on February 3, 2010 & Posted in Health Insurance

Shopping for health insurance can be confusing. Knowing the differences between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO) is essential to making sense of insurance quotes.

Physicians and Health Insurance
If your health insurance is an HMO plan, you will choose or be assigned a Primary Care Physician (PCP) who will be in charge of your care. Any time you need to see a doctor, you must first visit your PCP. If your needs are beyond the scope of what your PCP can provide, he or she will request authorization from the insurer to refer you to a specialist within the group.

When your insurance coverage is delivered by a PPO, you are able to see any doctor in your network, and even outside it in most cases, without prior authorization from a primary care physician or your insurance company. You will pay more for care outside your network, but you'll still have coverage as dictated by your policy. However, this does not mean that all procedures or medications or doctors are covered by your plan. Contact your insurance provider before you receive medical treatment if there is any doubt about its coverage.

Insurance Premiums and Co-pays
You will be charged a premium to participate in either an HMO or PPO. A premium is a regular payment to the insurance company for your coverage under the program. Your employer may pick up some or all of this expense.

A co-payment, or co-pay, is a charge you pay at the time a service is provided (generally for each office visit). The amount is relatively small, and some HMOs don't require it at all. Co-pays for PPO plans depend on your doctor's relationship to the insurer. In-network doctors agree to accept a contracted amount per visit from the insurer and a set co-payment from you. Out-of-network doctors have no such agreement, and while your insurer will probably pick up some portion of the charge, you will most likely pay more. Your co-payment is usually higher for a PPO in-network visit than for an HMO visit.

Deductible and Annual Maximum Out-of-Pocket
Deductibles and annual maximums apply to both HMOs and PPOs. A deductible is the amount of money you must pay before your insurance coverage kicks in. This is in addition to the premium and co-pays. Generally, the higher your deductible the lower your premium.

The annual maximum out-of-pocket limits the deductable and copayments you pay each year. Once you reach the cap for your plan, your insurance company pays 100 percent of eligible expenses up to your lifetime maximum.

Lifetime Maximum Benefit
Most health insurance plans cap the amount that they pay during your life span. Look for a plan lifetime maximum of one million dollars or more. The higher the lifetime benefit, the more expensive the policy will be, but only marginally so. A big reason people purchase health insurance is to protect against catastrophic events, so it makes sense to look for a cap that would cover such occurrences.

Discounts, Exclusions and Riders
HMO and PPO plans exclude certain coverage in their policies. For example, some plans do not cover maternity expenses. If you want insurance coverage not provided by a standard policy, you may be able to purchase a rider. A rider is additional coverage for which you pay an additional premium.

Those who prefer to pay less for health insurance can opt for higher deductibles or less coverage. And when getting quotes for individual health insurance, ask about discounts for healthy behaviors like not smoking and maintaining a lower body mass index (BMI). Most importantly, be a smart shopper. Compare rates and coverage and choose a plan that fits your budget.

Sources
A.M. Best
Insurance Information Institute
JD Power
National Committee for Quality Assurance
U.S. Department of Labor

About the Author

Lorraine Watkins is a communications professional who has managed marketing and public relations for Parasoft, Symantec, Candle and several other high tech companies. Her previous experience includes managing the Baskin Robbins franchisee training program and teaching college level English. Lorraine holds an MA in English from Cal State East Bay.

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