HMO vs. PPO

The biggest difference between an HMO and a PPO is that an HMO allows you to see doctors only within the HMO's network of hospitals. With a PPO, you can see any doctor you choose but coverage is greater for certain providers (doctors, hospitals and other healthcare service providers) that the PPO has contracted with. Seeing doctors outside of the PPO network results in higher out-of-pocket costs like copays and coinsurance. Insurance premiums are generally higher for a PPO compared with an HMO.

Comparison chart

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HMO

User Rating (184):

PPO

User Rating (186):
What does it stand for? Health Maintenance Organizations Preferred Provider Organization.
Clientele Large corporate clientele since companies offer HMO insurance to most of their employees Large retail clientele
Organisations offering such services Kaiser Permanente, Aetna Humana, Beech Street, Aetna.
Cost Lower premiums Premiums higher than HMO premiums and usually higher than EPO premiums. Cost of a PPO plan increases the more often you use out-of-network doctors. See also Coinsurance vs Copay.
Medical problems covered Mostly Basic Medical care and Preventive care such as office visits, immunizations, well-baby checkups, and physicals. Specialist treatment included as well
Emergency treatment HMO’s are not well suited for this since they have a defined procedure for emergency treatment outside its coverage area. Emergency treatments are also covered.
Flexibility in choosing Doctors and Hospitals Limited. The patient has to choose a Primary physician (PCP) within a network and that physician takes care of all medical needs of the patient, including referrals to specialists. See restrictions below. High. Members have an option to choose from a number of doctors/specialists that are in the “network” of the insurer. Benefits are either curtailed or unavailable if the member sees a doctor outside the network.
Restrictions Restrictions are laid down by the HMOs’ for range and scope of treatment. Specialists can be seen only after a referral from a PCP. PCP may choose to only refer to his own network or preferred group of doctors within the In-Network HMO doctors. Less restrictive. Referrals are not required to see specialists in the network.
Doctor / Medical Practitioner Incentive Doctors work on a retainer fees (capitation) per year hence no incentive to prolong treatment of patients Doctors typically have a work-pay relation i.e. they get paid per visit
Network Doctors Members can only go to the specified network doctors after taking prescription from the Primary physician. See restrictions above. Members can go to non-network doctors as well without any prescription.
Payment mode Patients pay the provider through a card without having to fill forms Patients have to bear a part of the cost if they go to a non-network (non-preferred) provider.

Contents: HMO vs PPO

edit What is an HMO?

A health maintenance organization (HMO) is a type of managed care organization (MCO) that provides a form of health insurance coverage in the United States that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. Under this model, providers contract with an HMO to receive more patients and in return usually agree to provide services at a discount. This arrangement allows the HMO to charge a lower monthly premium, which is an advantage over indemnity insurance, provided that its members are willing to abide by the additional restrictions

edit What is a PPO?

PPO means Preferred Provider Organization, a health care plan that provides covered services at a discounted cost for subscribers who use network health care providers. PPOs also provide coverage for services rendered by health care providers who are not part of the PPO network; the subscriber generally pays a greater portion of the cost for such services. Usually, a PPO will pay a greater percentage of the cost for a preferred provider, and less for a non-preferred provider.

edit Flexibility in an HMO vs. PPO

A PPO plan offers a member higher flexibility in choosing physicians, hospitals, and other health care providers that are part of a preselected network. PPOs also allow you to use a doctor or hospital outside of the PPO network in return for a small fee called a co-payment from you. PPOs usually let patients see medical specialists without getting permission first from a primary care doctor. HMO’s, on the other hand, require you, the member, to choose a Primary Physician and all medical inquiries are routed through the Primary Physician only.

Restrictions imposed by various types of health insurance plans - HMO, PPO, POS and EPO.
Restrictions imposed by various types of health insurance plans - HMO, PPO, POS and EPO.

edit Video explaining the differences

This video explains the key differences between HMO, POS and PPO health plans:

edit Benefits Covered

HMOs provide basic medical care and preventive care such as office visits, immunizations, well-baby checkups, and physicals. HMOs are not very well suited for any emergencies since they have a defined procedure for emergency treatment outside its coverage area.

PPOs provide all the above listed services and specialist treatment as well. PPO's are well equipped to manage all emergency treatments.

edit Cost of an HMO plan vs. a PPO plan

The major advantage of HMOs is the cost. HMOs are cheaper for the consumer than other plans. PPOs cost more than HMOs, but many people choose them because they are less restrictive. Members have more control over their healthcare decisions in a PPO than than they would have under an HMO.

edit Types of HMO and PPO

edit Types of HMO

Staff model HMO: Physicians are salaried and have offices in HMO buildings. In this case, physicians are direct employees of the HMOs. This model is an example of a closed-panel HMO, meaning that contracted physicians may only see HMO patients.

Group model HMO: The HMO does not pay the physicians directly, but pays a physician group. The group then decides how to distribute the money to the individual physicians. This model is also closed-panel.

Physicians may contract with an independent practice association (IPA), which in turn contracts with the HMO. This model is an example of an open-panel HMO, where a physician may maintain his own office and may see non-HMO members

In the network model, an HMO will contract with any combination of groups, IPAs, and individual physicians. Since 1990, most HMOs run by managed care organizations with other lines of business (such as PPO, POS and indemnity) use the network model.

edit Types of PPO

Non-gatekeeper PPO: Gives employees a provider directory that includes the names of specialists, since patients may go directly to them for medical care, without a referral form from a primary care physician.

Gatekeeper PPO: Requires that the patient seek medical care first from a primary care physician. If the patient seeks medical care directly from a specialist, without a referral from a primary care physician, he or she may have to pay the specialist’s charges in full, with no assistance from the insurance company.

edit Target Market

Most private health insurance in America is through employers so both HMOs and PPOs sell to businesses. HMOs tend to be less expensive and more restrictive so not all companies offer HMO plans.

edit History

The earliest form of HMOs can be seen in a number of prepaid health plans. In 1910, the Western Clinic in Tacoma, Washington offered lumber mill owners and their employees certain medical services from its providers for a premium of $0.50 per member per month. Ross-Loos Medical Group, established in 1929, is considered to be the first HMO in the United States; it was headquartered in Los Angeles and approximately 500 members enrolled at a cost of $1.50 each per month. By 1970’s, the number of HMOs in US had declined to less than 40. The big boost for HMO’s came after the enactment of the Health Maintenance Organization Act of 1973 which made it obligatory for Employers with 25 or more employees to offer federally certified HMO options alongside indemnity upon request

Preferred Provider Organizations began to appear in the late 1970s and early 1980s, as an alternative to HMOs, and are a way in which employers could manage their escalating health care costs. In a PPO, there is a panel of providers who have signed contracts with the PPO, agreeing to accept a reduced payment for services rendered in return for having patients directed to their offices by way of a Provider Directory given to employees and their dependents.

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Comments: HMO vs PPO

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Anonymous comments (2)

December 3, 2013, 6:26pm

This was a very useful comparison -- thanks!

— 98.✗.✗.35
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October 17, 2013, 6:43pm

for 2014 Medicare coverage AARP via United has started a PPO with NO referrals requirement and uses same large PPO network - makes the decision harder

— 75.✗.✗.198
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