How Does a PPO Health Plan Work?


Preferred provider organization or participating provider option, also called PPO, is a type of health insurance program that utilizes a network of health care providers. Policyholders are allowed to see providers outside the network but have a strong financial incentive to use in-network providers. With a PPO health plan, the policyholder does not have to designate a primary care physician and can usually see a specialist without a referral. PPO insurance is on a scale between the health maintenance organizations (HMOs), which are less expensive but do not provide any coverage when customers go outside the network, and point-of-service plans with no provider restrictions but much higher premiums.

Deductibles and Co-Insurance

A PPO customer can go to any physician or hospital he chooses to, but going outside the network will cost him more. The deductible, the amount which the insured person must pay before the insurance company begins to provide coverage, is higher when going outside the network. In addition, the PPO might pay 90 percent of the bill from network physicians but only 60 to 80 percent of expenses for non-network treatment. These percentages of shared costs are referred to as co-insurance.


Co-payments also are higher outside the network. A co-payment is the amount the client pays up front when seeing a health care provider. Going to a network provider for a service that costs $500 might require a $50 co-payment, while visiting a provider outside the network might require a $150 co-payment. The health care organization then bills the insurance company for the remainder of the service, which will pay the percentage determined by the co-insurance and whether the deductible has been fulfilled.

PPO Structure

A PPO is created when a group of physicians and health care facilities agree to provide medical services at a discounted rate to sponsors such as organizations and employers. They do this in return for increased traffic resulting from the in-network financial incentive. Many companies offer employees a choice between an HMO or PPO, and the employees must determine whether the flexibility of a PPO is worth the added cost.