HMO vs PPO: Picking the Right Health Plan 

 November 17, 2020


For some reason the healthcare industry has to make everything so confusing. How do you know which health insurance plan is right for you and your family? Comparing HMO vs PPO plans can make you want to pull your hair out. But we are here to help you through it.

Looking For A Comparison Chart? Click Here to Skip Ahead.

What does HMO and PPO mean?

Health Maintenance Organizations (HMOs), and Preferred Provider Organizations (PPOs) have distinct and separate characteristics. Deciding which health insurance plan works best for you is dependent entirely on your and your family’s situation.

Let’s detail the ins and out of each plan. What are the differences and similarities? How can each plan benefit you and your family?

Check out the breakdown HMO vs PPO health insurance plans below.

Health Maintenance Organization (HMO)

A Health Maintenance Organization is a type of health insurance that requires every participant to choose a Primary Care Physician (sometimes called a primary care provider or PCP). This Primary Care Physician is then responsible for referring you to in-network specialists or hospitals whenever necessary.


Each HMO has a network of doctors, from which you can choose your PCP. Members of these networks agree to provide their services at lower prices as negotiated by an insurance company. Typically, HMOs only contract with a limited number of providers in a geographic area.

Because of this, insurance carriers won’t pay for health care services you receive from out-of-network providers. In exchange for fewer providers, patients in HMOs typically pay lower monthly premiums.

Types of HMOs

There are three types of HMOs. The first type is the staff model or group practice plan. In the staff model, physicians are paid a standard salary regardless of the number of patients they see. Under this model it’s reasoned there are no incentives to give unnecessary service. Consequently, the organization should incur fewer costs thereby patients’ premiums can be held down.

Another type is the individual practice association. Under these plans, physicians earn a fee based on services provided or a fee for every HMO patient, regardless of whether any patient is seen. Because care is usually decentralized, both you and your doctor have to locate different medical facilities as they’re needed.

The last type is an open-ended HMO. This type is a hybrid plan that extends conventional fee-for-service coverage to members. Those enrolled to receive the benefits of prepaid care in addition to the option of going outside the plan to see another doctor. Typically, if you see an outside doctor it’s covered under another insurer, and you pay for in through copayments.

HMO Changes on the Horizon?

A majority of the advantages and disadvantages of HMOs are geography based. The network you’re confined to is typically based on location. But the new tax reform may lead to an expansion of HMOs. According to The Hill, there may be a decentralization of patient services from regional hospitals to local markets.

This decentralization, when combined with other factors is likely to lead to an increase in the use of HMOs. The proposed selling of health insurance across state lines will expand the use of HMO plans. These health plans will no longer be limited by a state’s boundaries, which increases their relevancy.

Preferred Provider Organization (PPO)

A Preferred Provider Organization is a type of health insurance that offers a network of healthcare providers, much like an HMO. Unlike an HMO, PPO plans give participants the freedom to seek care from any in or out of their network. For many individuals and families this the primary care doctor.

To be clear, though, you will pay more out-of-pocket medical costs if want to you see an out-of-network provider. Even if your nonmember doctor accepts the PPO rate, your plan may make you pay an extra amount because the doctor isn’t a member of the plan. Similarly, under a PPO, participants don’t need a referral to receive care from a specialist or hospital.

health savings accounts

The biggest advantage that PPO plans offer over HMO plans is flexibility. PPOs offer participants much more choice for choosing when and where they seek health care. The most significant disadvantage for a PPO plan, compared to an HMO, is the price.

PPO plans generally come with a higher monthly premium than HMOs. So, unless you’re a person who sees a lot of specialists, a PPO plan could cost you more money over the course of a year.

Learn more about health insurance.

Which is Better PPO or HMO?

Do I need a Primary Care Physician?Yes, under an HMO plan your PCP coordinates all of your healthcare decisions.No, a PPO doesn’t require a PCP. You can select any doctor you choose, but you will pay more for out-of-network care.
Do I need a referral to see a specialist?Yes, you will need a referral from your PCP to see a specialist or receive care from a hospital.No, if you want to see a specialist, or go to a hospital, you make the appointment yourself.
Will any care I receive from an out-of-network provider be covered?No, HMO plans do not offer coverage for healthcare from an out-of-network physician or hospitality, except in case of emergency.Yes, PPO allows you to see any medical provider, including those who are out-of-network. As previously said, you will have to pay higher out-of-pocket costs.
Will I have to file a claim?No, because HMOs restrict your care to in-network providers, you’ll most likely never have to file a claim because your insurance company pays the provider directly.Yes, if you receive out-of-network care, you’ll have to submit your claims to be reimbursed.
How much will these plans cost?Generally, lower costs.Generally, higher costs.

Why Would a Person Choose a PPO over an HMO?

So which plan is right for you (or your family)? When you’re deciding between an HMO and PPO, there is a multitude of factors you have to consider. If you, or your dependents, utilize a lot of specialists or require regular hospitalization, a PPO may be better.

man making a decision

A PPO gives you increased flexibility and allows you to bypass seeing a primary care physician, every time you need specialty care. So, if you are a heavy healthcare user or have a large family, the flexibility of a PPO plan may be worth it.

On the other hand, an HMO will typically have lower monthly premiums and lower out-of-pocket costs in general. If you are considering an HMO, it is necessary to check approved in-network providers in your area, under the plan.

There may be a lack of viable HMO providers near you, in which case your decision would be much easier. But, if you can handle an increased rigidity in your healthcare, an HMO may ultimately prove more valuable for your or your family.

Learn how an EPO plan may even be a better solution.

The Wrap

Which plan should you choose when picking between, HMO and PPO plans? Well… it depends. No matter what, because health insurance is so (intentionally?) confusing, it’s important that employees understand their options.

Whether its HMO vs PPO, make sure your employees know the difference.