HMO vs. PPO: What's the Difference?

When shopping for a healthcare plan, it is important to compare costs, the size of the network and the flexibility of various plans. Two common types of healthcare plans are health maintenance organization (HMO) plans and preferred provider organization (PPO) plans. Although both are popular plans, they are designed for different consumers, so it’s crucial to understand how each works so you can determine which is the best fit for you.

Ask a financial advisor about how healthcare costs fit into your financial plan over the long term.

Health Maintenance Organization Plans

Health maintenance organization (HMO) plans offer members a variety of healthcare services through a network of specific providers. These plans carry a broader range of coverage for preventative healthcare services than other types of healthcare plans.

As an HMO plan member, you’ll select a primary care provider (PCP). Your PCP will then be responsible for coordinating any healthcare services you need, including scheduling appointments with specialists.

While there are many types of plans, HMO members usually have lower out-of-pocket expenses. In some cases, you may not even have to pay the deductible before your coverage starts. Copays may also be minimal, depending on your plan.

Typically, you do not have to submit claims through your insurance provider. However, if you choose to use an out-of-network healthcare provider that wasn’t a referral from your PCP, you may not have coverage, meaning you will have to pay for any services rendered.

Preferred Provider Organization Plans

In the family and individual healthcare market, preferred provider organization (PPO) plans are among the most popular. With a PPO plan, you can visit any in-network healthcare provider without a referral from your primary healthcare provider.

As a PPO plan member, you don’t have to select a primary care provider. You can simply select any healthcare provider, as long as they are in your network. Because of this flexibility, you receive a higher level of coverage from in-network providers compared to out-of-network providers. This is why, before you make an appointment, it’s crucial to verify that the healthcare provider accepts your coverage.

Most policies require you to meet an insurance deductible before your healthcare coverage begins. You may also have to pay a copay, which can be a flat fee or a percentage of your total medical bill, depending on the type of services you receive.

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HMO vs. PPO: Key Differences

There are a few key differences between HMO plans vs. PPO plans.

Flexibility

PPO plans tend to offer more flexibility in selecting a doctor or hospital because there are fewer restrictions on out-of-network healthcare providers. Sometimes, the plans even cover out-of-network provider visits.

However, with an HMO plan, you’re required to select a PCP and can only see a specialist if your PCP refers one. The issue with this is that if your PCP does not give you a referral, you may find yourself in a bind during a medical emergency. If you see a doctor outside of the network, you likely will not receive coverage, leaving you responsible for the full bill.

Cost

Another difference is the cost of each health plan. HMO plans are often more affordable with lower monthly premium payments and no annual deductible. However, with PPO plans, you typically have to pay a deductible before your coverage kicks in. You may also be responsible for paying copays for certain healthcare service visits.

The Kaiser Family Foundation (KFF) analyzed the average costs of HMO and PPO plans, specifically looking at Medicare Advantage Part D (MA-PD) plans. The study found that PPO premiums have reduced drastically over the last decade, with monthly premiums falling from $65 to $15 from 2015 to 2025. HMO monthly premiums have also declined, decreasing from $28 to $11 over the same period.

KFF also calculated the enrollment-weighted average for out-of-pocket limits. These are based on 2025 Medicare Advantage limits of $5,320 for in-network services and $9,547 for both in-network and out-of-network services:

HMOs enrollees had an average out-of-pocket (in-network) limit of $4,091 and were mostly responsible for 100% of out-of-network costs.
In comparison, local and regional PPO enrollees had an average out-of-pocket limit for in-network care of $9,519, while both in-network and out-of-network care came to $11,001.

The differences are pretty significant.

In general, the main differences between an HMO vs. PPO come down to critical factors like cost, network size, specialist coverage and availability of out-of-network healthcare services.

HMO or PPO: How to Decide

So, is an HMO plan or a PPO plan better for you?

To decide, carefully consider your current and future medical needs, as well as your ability to pay. Weigh the pros and cons of each to determine which account is suitable for you. For example, you may think paying lower premiums with an HMO plan makes sense now, but you may appreciate – or even require – the greater flexibility of select healthcare providers and lower deductibles later on with a PPO plan.

To make a better decision, you can review all the in-network providers in your area. You may also want to review your income and determine if you will need to see a specialist in the next year.

Additional Plan Features to Compare

Beyond the broad differences between HMO and PPO structures, many plans include specific features that can influence overall costs and access to care.

Prescription Drug Coverage

Prescription drug coverage is one area that often varies across plans. Formularies, which are lists of covered medications, are structured in tiers, and placement in those tiers affects out-of-pocket costs. Reviewing how your current medications are categorized can help you better understand the potential cost differences between plans.

Virtual/Telehealth Support

Another feature that can differ is access to virtual or telehealth services.

Some plans include telehealth visits at lower copays than in-person appointments, while others bundle them into preventive services. For people who prefer remote care for routine needs, these differences may matter.

Out-of-Pocket Maximums

Out-of-pocket maximums also play a large role in total annual costs.

Even when a premium is low, a higher out-of-pocket maximum can result in greater spending during a year with more medical needs. Comparing deductible amounts and coinsurance rates, as well as the overall out-of-pocket cap, provides a clearer picture of possible cost ranges.

Wellness Benefits

Some plans also offer wellness benefits, such as preventive screenings, nutrition counseling or fitness incentives. However, these programs vary significantly by carrier and plan type.

While these benefits should not necessarily determine which plan you should choose, they can add value for people who use them.

Provider Support

Finally, customer service and provider availability can differ across insurers. Check your plan’s directories for a listing of available doctors; however, be forewarned that wait times, appointment availability and office locations all vary by practice.

Reviewing these details may help clarify how convenient a plan will be once enrolled.

Bottom Line

By taking the time to understand the key differences between HMO vs. PPO plans, you can make an educated decision based on your specific healthcare needs. Keep in mind that each plan carries its own terms and limitations, so it is imperative that you review the fine print before selecting a plan to ensure it works for you and your budget. Whichever route you take, be sure to dig into the details and costs of each so you can avoid surprises later.

Tips for Planning for Healthcare Costs

A financial advisor can help you understand how healthcare costs can impact your finances, especially as you approach retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When shopping for healthcare insurance you may want to compare a PPO with a high-deductible health plan (HDHP). These have lower premiums and higher annual deductibles than traditional plans. An HDHP is also a prerequisite for having a health savings account.