HMO vs PPO: What’s the Difference?

Hundreds of millions of people depend on insurance to take care of their health care, but everybody has unique needs and not every plan is right for every person. That’s why many insurance companies bundle their coverage in a variety of packages that are geared toward people’s special circumstances. Two of these, HMOs and PPOs, have emerged as the most popular care options. You probably have a choice between them when you first sign up with an insurance carrier, and you might have wondered what the differences between them are.

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HMO vs PPO

Basically, both HMO and PPO plans are structured networks that allow insurance providers to efficiently deliver care for their policyholders. They do this in different ways, with neither type being the best for everyone. Find out more below.

Ways to Organize Health Insurance

HMO

HMO stands for Health Maintenance Organization. HMOs are typically huge networks of affiliated providers who effectively work for the same organization, the HMO. An emergency room physician at a hospital, for example, might work for the same network as a physical therapist at a clinic across town and a family practice doctor in another city. All of the providers in this network accept the same insurance plan, just as if you got your care directly from the insurance company.

Typically, providers who work with an HMO are bound to the organization’s standards and rules, and many HMOs don’t let their in-network providers accept patients from outside the HMO. Some of the larger HMOs, such as Kaiser Permanente, offer their participants access to outpatient services, post-acute rehab, inpatient hospitalization, physical therapy and pharmacy services, all under a single plan.

PPO

Preferred Provider Networks (PPOs) are much less tightly bound networks than HMOs. Doctors in a PPO usually accept the insurance company’s basic requirements and agree to a price list for the services they provide.

Unlike an HMO, most of the providers in a PPO are independent and may choose to accept patients from outside of the network. Some PPOs also allow their providers to accept competing insurance plans if they wish.

If you're enrolled in a PPO, you can get a list of preferred providers inside the network and plan your healthcare services accordingly. Typically, the PPO can give you a list of primary care doctors in the network, specialists you might need to consult with and extra services, such as nursing home care, it can help pay for.

Unlike an HMO, the typical PPO doesn’t own or directly manage any facilities of its own, but instead sets up its own billing and payments system across independent providers.

What Are the Advantages an HMO Has Over a PPO?

HMOs have certain advantages over PPOs. First, the care they provide is almost always up to a known standard, since they directly oversee the performance of their providers. Another advantage is the ease of finding and transferring care inside the HMO.

If you need a second opinion, lab tests, specialist care or even prescription drugs, your single HMO insurance plan probably covers all of these services for a single monthly premium. These services might even be located under a single roof, which also makes getting medical care fairly simple.

Another major advantage HMOs have is with information portability. While PPOs are generally good about managing enrollees’ information, HMOs have the unified data sharing network they need to easily and securely transfer your health records from one doctor to another, or to track your health conditions over time.

This can be exceptionally helpful to avoid drug interactions, for instance, since all of your meds are delivered from a plan pharmacy with access to the appropriate records.

What Are the Advantages a PPO Has Over an HMO?

PPOs have some advantages of their own over HMOs. They tend to be more flexible than HMOs, for instance. Because a PPO acts as a payment network, rather than a manager of your healthcare from front to back, you can generally book appointments and get care anywhere in the network without permission from the insurer.

You can also generally seek second opinions or shop around for nursing care on your own. As long as the provider you settle on is part of the PPO network, you usually don’t need a primary care doctor’s permission to seek extra help or to get services you need.

PPOs can also be more portable when you’re traveling. HMOs usually insist on providing your non-emergency care at plan facilities, with little or no coverage for care you seek outside of the network.

Because PPOs are more like traditional insurance packages, many of them can authorize payments for needed services outside of their networks. Apart from emergency care, this is most often done when you need a specialist who isn’t readily available inside of the preferred network you’re a part of. In that case, many PPOs allow you to bill the network for necessary services from an outside provider.

Other Ways to Receive Care

HMO and PPO are not the only forms your health insurance can take. Many insurers offer several other options for your needs.

Exclusive Provider Options (EPOs)

EPOs are a type of HMO that trade flexibility for cost. Like other HMOs, EPOs allow you to seek emergency care when and where you need it, but that is all.

EPO participants almost never get coverage for care delivered out of network. This reduces the portability of your healthcare, but it does tend to lower the cost you pay in premiums and other out-of-pocket payments.

Point of Service (POS) Plans

POS plans are a kind of HMO/PPO hybrid that combines some of the best features of both. If you have a POS plan, you likely have in-network providers and a primary care doctor, just as in an HMO.

Unlike an HMO, you can carry your POS benefits outside of the network if you wish, though you will likely pay more. POS plans are still a small percentage of health insurance programs nationwide.

Special Needs Plans (SNPs)

SNPs are customized insurance options that can be ideal for people with a single chronic health condition. People with diabetes, for example, or who are HIV+, may opt into an SNP that carries minimal coverage for most health services, but maximum coverage for the services their conditions need most.

Thus, a person with kidney failure might enroll in a Medicare SNP (which is available for some kidney patients, regardless of age) to pay for dialysis and transplant surgery.

HMO vs PPO

Whichever type of plan you opt into for your health insurance, it’s important to know how your plan works to deliver the care you need. Reach out to a plan representative with any questions you have about coverage.