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HMO vs. PPO: What’s the Difference?


When shopping for a healthcare plan, you’ll want 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. They differ in key ways that make them suited to different types of healthcare consumers. To help you determine which plan is right for you, here’s a breakdown of what each plan entails and the key differences.

Health Maintenance Organization Plans 

Health maintenance organization (HMO) plans offer a variety of healthcare services through a network of providers who agree to provide services to members. HMO plans have a broader range of coverage for preventative healthcare services than you may see with different 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, such as if you need an appointment with a specialist.

While there is a variety of HMO plans, members usually have lower out-of-pocket expenses. In some cases, you may not have to pay the deductible before your coverage starts. Additionally, your copays might be minimal depending on your plan. Typically, you won’t 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 tend to be some of the most popular plans. 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 won’t have to select a primary care provider. You can simply select any healthcare provider if they are in the network. You will receive a higher level of coverage from in-network providers as opposed to out-of-network providers. Before you make an appointment, it’s crucial you verify if the healthcare provider accepts your coverage.

Usually, you will have to meet a deductible before your healthcare coverage starts. You may also have to pay a copay of about $10 to $30 or a percentage of your total medical bill depending on the type of services you receive.

HMO vs. PPO: Key Differences

There are a few key differences between HMO plans and PPO plans. The first is flexibility. PPO plans tend to offer more flexibility when selecting a doctor or hospital and have fewer restrictions when you want to see out-of-network healthcare providers. Sometimes, the plans even cover out-of-network provider visits. With an HMO plan, you’re required to select a PCP and can only see a specialist if the PCP refers one (this may not apply to emergencies). If you select a doctor outside of the network, you may not receive coverage and might have to pay the full amount.

Another difference is the affordability of each plan. HMO plans are often more affordable, have lower monthly premium payments, and have no annual deductible. With PPO plans, you may have to pay a deductible before your coverage kicks in and may pay copays for certain healthcare service visits.

According to a 2019 survey by the Kaiser Family Foundation, the annual costs for an HMO plan for single coverage were $7,238 and $20,697 for family coverage. With the average annual cost for single coverage for a PPO plan being $7,675 and $21,683 for family coverage.

In general, the cost, size of the network, the ability to see a specialist, and the coverage for out-of-network healthcare services are the main differences between HMO plans and PPO plans.

HMO or PPO: How to Decide

So, is an HMO plan or a PPO plan right for you? To decide, you will have to consider your current and future healthcare needs as well as your ability to pay. It’s important to weigh out the pros and cons of each to determine which one is suitable for you. For example, you may think paying lower premiums with an HMO plan makes sense now, but you may want the luxury of more flexibility with 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 need to see a specialist in the next year.

The Bottom Line

By taking the time to understand the key differences between HMO and PPO plans, you can make an educated decision based on your specific healthcare needs. Keep in mind, each plan will have different terms and limitations. Therefore, you’ll want to review the fine print before you select a plan to ensure it works for you and fits within your budget. Whatever route you take, make sure you dig into the details and costs of each.

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 up to three 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 goalsget 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.

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