HMOs versus PPOs: What's the Difference?

June 25, 2014

PPO stands for Preferred Provider Organization. This type of insurance has "preferred providers" with whom they have contracted to provide care to plan members at a reduced cost to the insurance company. "Out-of-network" providers are all other providers not associated with the organization. Plan members may choose to see out-of network providers, but most likely will end up paying more money, either in the form of a higher co-pay or as a result of higher initial costs. . With PPOs, however, you may see any doctor you wish. You don't need a referral to see a specialist.

HMO stands for Heath Management Organization. This type of insurance plan also relies on a network of previously contracted providers that you are limited to seeing and usually requires the patient to have a specific primary care physician (PCP) through which all health decisions are centered. If you see a non-network provider, the HMO will usually not pay the bill, except for some emergency cases. If you want to see a specialist, you must generally first get a referral from your PCP.

Both plans have generally been successful in managing the cost of premiums, both for employers and plan members. A big part of their structural cost advantage comes from the steep discounts for services they are able to secure from their contracted health care providers. Health care providers are frequently eager to grant discounts to the plans in exchange for the prospect of a steady flow of patients. The plan members benefit to the extent that cost savings are passed on to them.

Both managed care plans tend to provide more emphasis on preventive care than on caring for acute medical conditions - which have also enabled these plans to realize some cost savings. However, those cost savings do come at a trade-off: These managed care plans provide somewhat less flexibility and choice to the plan member than a comparable indemnity or fee-for-services plan. Nevertheless, they do prove popular among

Fees and Costs

PPOs frequently feature lower monthly insurance premiums. However[u1] , HMOs can make up for higher premiums because many HMOs have low or no deductibles. So from an out-of-pocket cost point of view, HMOs may have an advantage over PPOs, despite their higher monthly premium costs. This is especially true if the plan member needs to use plan benefits frequently.

Advantages of PPOs

Options. PPOs clearly provide more flexibility and choice to plan members, since you can access specialists directly without a referral. You also have the option to go "out of network," although PPO networks can be quite extensive. If you go out of network, you may have to pay the difference in price for the services. But HMOs tend to be more restrictive of out-of-network care.

Reach. PPOs are generally larger in both geographic area and number of providers, simply because it will allow you to see any doctor you wish, associated with the PPO or not. HMOs are extensive, but they tend to focus their business on urban and suburban locations. Rural residents often find themselves driving long distances, forgoing care, or paying the entire medical bill because of the lack of geographically available HMO physicians.

Advantages of HMOs

Convenience. HMOs have a significant advantage when it comes to billing and record-keeping. You are dealing with one network, with one billing system, who deals with all of the medical issues you have had, regardless of number of doctors or locations of testing. Centralization of these medical and financial records makes it easier for you to keep track of your out-of-pocket expenses with much less paperwork. Centralization also makes it easier to deal with billing questions and customer service; think one-stop shopping. PPOs, in contrast, act as an intermediary between whomever you have seen. You are invoiced by each medical doctor, laboratory, or other provider. ; You may therefore have many more pieces of paperwork and people to keep track of.


Continuing in this model, in terms of actual heath care outcomes, HMOs, with its focus centralized care, tend to have healthier patients. According to a National Committee for Quality Assurance 2011 study, patients in HMOs had a higher rate of use of preventative and wellness care as well as a higher rate of seeing medical providers for chronic illness care. With a centralized care focus, HMO patients were more likely to be encouraged to use all health benefit options within the system by their PCP as opposed to those patients who visited with a variety of independent physicians in their PPO. The gap is slowly closing as the industry evolves, but the gap is still there, nonetheless.