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What is the difference between HMO health insurance and PPO insurance?

By Insurance.com Posted : 04/11/2014

HMO in block lettersIt can be difficult to make the right choice when assessing health insurance plans if you're not aware of the differences among the types of plans available. Comparing health insurance quotes and choosing the right health insurance plan can be confusing. You can easily get lost in alphabet soup of acronyms and a dizzying array of coverage options when open enrollment rolls around.

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Fortunately, most options can be boiled down to three basic types of managed health care plans -- health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans.

What is PPO insurance? What is the difference between PPO and HMO? It's important to learn all about health insurance options so you'll know which one is right for you.

Health maintenance organization (HMO) plans: Low premiums, less flexibility

A health maintenance organization (HMO) contracts with health care professionals and facilities to create a "provider network." If you choose HMO insurance, you'll typically pay just a small co-payment if you visit a physician or hospital within the plan network. HMO insurance often features lower premiums and co-pays than other plans.

However, HMO insurance is also among the least flexible types of health insurance plans. When you sign up for one of these plans, you must choose a primary care provider (PCP). If your current physician is not in the plan, you will have to find another doctor, or pay to see your current physician.

Typically, HMOs will not pay for non-emergency care if it's performed by an out-of-network physician or facility. You'll also need a referral from your PCP to see a specialist.  Before you choose an HMO, you should understand your options for seeing providers outside the HMO's preferred network.  Some HMOs offer more choices than others.

In general, HMOs offer you the lowest out-of-pocket costs for your care. The tradeoff is that your access to care outside the network is extremely limited.

Preferred provider organization (PPO) plans: Skip the referral to a specialist

A preferred provider organization (PPO) also enters into contractual agreements with health care providers and creates a "provider network." But unlike HMOs, PPO health insurance will cover some -- but not all -- of the cost of care administered by out-of-network providers.

If you select a PPO, you will have low co-payments as long as you see in-network physicians. Another advantage of PPO insurance is that unlike an HMO, you do not need a primary care physician's permission to see a specialist (as long as the specialist is in network).

However, PPOs also have a few disadvantages. Going out of network for your medical care is likely to cost you – either you'll have to pay a deductible or the difference between what the out-of-network physician and an in-network physician charges.  However, unlike many HMO plans, a PPO health insurance plan generally will pick up at least some of the cost of out-of-network care.

In addition, you may have to pay higher co-payments if your doctor charges more than is "reasonable and customary" (according to the insurer) for a service.

In summary, PPO health insurance offers a wider range of access than HMO insurance, but your out-of-pocket costs tend to be higher.

Point-of-service (POS) plans: Out-of-network visits for a fee

A third type of health plan --  known as a point-of-service (POS) plan -- offers a combination of PPO health insurance and HMO insurance services. In fact, the "point of service" in the name reflects the fact that you make your choice of whether to use HMO or PPO services each time you see a provider.

Generally, a POS has rules similar to HMO insurance, but a POS will allow you to see an out-of-network physician for a higher fee. Some HMOs actually include a POS plan so you can see out-of-network physicians.

Understanding the differences among HMO, PPO and POS plans can help you make the right health insurance plan choice during your next health insurance open enrollment period.

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