HMOs, or health maintenance organizations, and PPOs, or preferred provider organizations, are two different types of health insurance available to both private consumers and employees. An HMO is most often available through an individual's employer, while PPOs are the more common option for people who purchase private insurance on their own. While they both offer health care benefits, HMOs and PPOs are very different types of coverage. Determining which is better for the needs of you and your family depends on several important factors.
A health maintenance organization, or managed care program, is a type of health insurance coverage for members who pay a monthly fee to participate in the program. An HMO typically offers a wide variety of health care services for a fixed and pre-determined fee. HMOs keep healthcare costs low by determining how much they are willing to pay for specific health services. Then, they develop partnerships with health care providers who agree to accept those amounts as payment for their services. HMOs are often available for members through their employers, who generally offset the cost of the program by paying a part of the monthly membership fee. Members of HMOs can only use pre-approved services and providers, or face paying the costs of the services out of their own pockets.
A preferred provider organization is another type of managed-care health insurance program. Much like an HMO, you can choose from a network of health care providers that enlist with the PPO to offer their services at a pre-determined rate. However, unlike an HMO, members of a PPO can choose to see specialists and primary care providers outside of the network at a slightly higher out-of-pocket cost. Also unlike HMOs, PPO members can visit any specialist they want without first obtaining a referral from a primary care physician. In this way, a person insured by a PPO takes greater responsibility for managing his own health care needs.
Quality of Care
The quality and types of care received by members of HMOs and PPOs can vary widely. A person insured by an HMO can only obtain services that the organization approves, and only from health care providers in the HMO's network. An HMO will typically place greater emphasis on keeping costs low whenever possible. Thus, a patient may have to seek less costly and less effective services before obtaining approval for higher-cost treatments. An HMO-insured patient may also have to jump through several bureaucratic hoops, as access to specialists is often limited to patients with prior approval from their primary care providers and the HMO itself.
A PPO-insured patient may receive some coverage for specialists of their own choosing without a referral. However, they may pay more for seeing these specialists. Also, there is some advantage to seeing a primary care physician for a referral. A primary care provider has greater expertise in preliminary diagnostic techniques, and may be able to refer you to the correct specialists with greater accuracy. Determining your own specialist needs may be little more than educated guesswork, and may prolong the process of obtaining an accurate diagnosis.
For patients who want to manage their own health care needs more proactively, a PPO may be the more attractive choice. For those who do not want to receive bills from multiple health care providers and don't want to manage their own healthcare single-handedly, an HMO may be preferable.
In general, PPOs entail higher out-of-pocket expenses for insured individuals over HMOs, though there are some similarities. Both often have deductibles, a pre-set amount you must pay before your insurance starts paying for coverage. However, an HMO usually exempts certain preventative and basic care services from deductibles, such as prenatal services and annual physicals. With these types of services, you bypass the obligation to pay the deductible and are responsible only for your co-payment, or standard out-of-pocket fee for the services. Most PPOs don't exempt any services from the deductible obligation, except in a few plans with very high annual deductibles.
There are other cost considerations. HMOs restrict their members to obtaining services only from their network of providers. Visiting these providers keeps costs lower for the insured. With a PPO, a patient may choose to go to any health care provider or specialist she wants, but the out-of-pocket co-payment will be higher if the provider isn't part of the PPO's health care network.
For patients who prefer to pay more for greater variety and choice in health care provider options, a PPO is a better value. But if the insured person aims to keep healthcare costs as low as possible, an HMO is typically more cost-effective.
Care Provider Choice
A main difference in the two types of insurance is the ability to choose health care providers. In an HMO, members can only obtain health care from doctors and services that are members of their health care provider network. This limits the choices a patient has when choosing a primary care physician and other specialists. In a PPO, a patient may also choose from a health care provider within the PPO's provider network, but she may also choose her own provider from outside the network. This is particularly advantageous for a patient with a long-standing relationship with a primary care physician or particular specialist. Choosing PPO coverage in this instance would be best if the doctor is not part of the provider network and the patient does not want to go to another doctor. However, she may pay more if the health care provider is not part of the network. If an individual doesn't mind choosing doctors only from within the designated network of providers, an HMO is a more cost-effective solution.
Because they don't bill the patient directly, health care providers in an HMO often bypass the patient when exchanging confidential information about the individual's health care history. This is effective for organizational and record-keeping purposes, but some individuals may have concerns about the lack of control over who sees their patient records and for what purposes. In a PPO, the patient receives notice of all transactions and records pertaining to his health care history and procedures. In this way, the patient is more engaged in the management of his own health care privacy. If privacy is a significant concern for a patient receiving health care, a PPO membership may offer greater control. For most patients, however, the privacy safeguards an HMO undertakes sufficiently addresses their privacy concerns.