The Difference Between HMO & PPO Insurance Plans

The Health Maintenance Organization and Preferred Provider Organization plans are two of three managed health care plans in the United States along with Point of Service. There are several differences between HMO and PPO plans. One plan provides freedom of choice for its members at a higher price, while the other provides quality service at a lower cost, but limits their medical options.

HMO Plan

• HMO plans provide their members with the highest amount of insurance benefits of the three managed health care plans, but the least amount of options. HMO costs are low because of efficient health services that eliminate unnecessary medical procedures. Members can still get those procedures done, but they will be responsible for the entire medical bill without insurance coverage. HMO insurers promote preventive care services and encourage members to visit their doctors regularly to minimize their chances of getting serious medical conditions. HMO plans are widely available as they cover more people than the other two managed health care plans. According to the Kaiser Family Foundation, HMO plans cover 66 million people in the United States in 2010.

Benefits of a HMO Plan

• Every member of a managed health care plan is given a provider network which is a list of doctors in their geographical area who provide medical services at rates negotiated with the insurance company. HMO members typically pay small co-pay amounts and no deductibles when they stay in network for medical care. Also HMO plans provide incentives for members to maintain good health, such as discounted gym memberships.

PPO Plan

• PPO plans have the second largest membership among managed health care plans, covering 53 million people in 2010 according to the Kaiser Family Foundation. Under PPO plans, members are able to take advantage of having several health care options. When members stay in network, they receive the maximum insurance benefits provided by their insurers. They are also able to go out of network on their own and still receive insurance coverage, although less than what they would get in network. This isn't the case with HMO plans as they are restricted from going out of network unless authorized by a doctor.

Benefits of a PPO Plan

• Although members are able to take advantage of other medical options by going out of network for health care, they receive less insurance benefits from their insurers, and pay more of their bill out of pocket. However, insurers typically limit their member's out of pocket costs whether they're getting care in or out of network. PPO plans cap individual's out of network costs at $2,000 ($1,200 for in network care) and family's at $3,500 ($2,100 for network services), as of September 2010. These figures depend on the insurer's policy terms.

Differences Between HMO and PPO Plans

• One of the features keeping prices affordable for managed health care members is the utilization of Primary Care Physicians, or PCPs. PCPs are picked by members from their provider networks to manage their medical services. The PCP authorizes surgeries and visits to doctors in or out of network via referrals. Members of HMO plans are required to choose PCPs, however those who are covered under PPO plans are not. Another difference is PPO members pay for their medical services as they are rendered, while HMO plans prepay their member's health services.