What Does PPO Stand for in Health Insurance?

PPO is an acronym for preferred provider organization. A PPO is a type of managed health care plan, a system that handles the financing and delivery of services to plan members in exchange for a fixed monthly premium. Though the health care is managed, and therefore somewhat restricted, plan members are still given a degree of freedom when it comes to choosing providers.

Function

• A PPO consists of contracted hospital and physician providers that create a provider network, according to the National Library of Medicine's National Information Center on Health Research and Health Care Technology. The providers in a PPO offer health care services to members at discounted rates in exchange for expedited claims payments. Plan members have the opportunity to use either PPO or out-of-network health care providers, although financial incentives encourage the use of PPO providers.

Features

• A PPO guides the insured to utilize cooperating hospitals and doctors that have agreed to a predetermined plan to keep costs low, according to Inc. magazine. With PPO coverage, the insured agrees to use a list of contracted providers. The insured can see a doctor or specialist who isn't a member of the PPO, but the difference must be paid between the nonmember's bill and the PPO's discounted rate. Even if the doctor accepts the PPO discounted rate, the plan may make the insured pay extra because the doctor is not a member.

Example

• According to the American Heart Association, if the insured individual chooses to see an in-network physician under a PPO plan, this person may have only a small deductible or co-payment. If the same person chooses to see an out-of-network physician, the patient may have to pay up to 50 percent of the entire bill.

Advantages

• A PPO eliminates or reduces co-insurance and deductibles. Joining could help save money as long as the insured individual uses the list of approved providers, according to Kiplinger. Unlike other managed care plans, PPO members normally do not require a referral to see a specialist. PPOs also do not require a primary care physician (PCP), also known as a gatekeeper. In other managed care plans, such as health maintenance organizations (HMOs), a PCP authorizes, arranges, provides and coordinates all aspects of the insured individual's health care.

Disadvantages

• Kiplinger notes that if the insured individual wants to use a specialist or facility that is outside the home area, a PPO can complicate this decision. When considering a PPO, check if the PPO provides coverage without penalty if you're injured or sick in another town.