Individual Health Insurance – The Difference Between HMOs and PPOs

If you are searching for an individual health insurance plan, you will undoubtedly encounter both Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). 

Both HMOs and PPOs are types of “managed care” insurance.  Managed care plans are structured around concept of a network, which refers to a group of doctors, hospitals, and other healthcare providers. 

Now that the definitions are out of the way, let’s look at the differences between an HMO and PPO.

Health Maintenance Organizations (HMOs)

HMOs are offer good care at a low cost.

Under an HMO plan, healthcare is provided by doctors who are members of the HMO network.  From a coverage standpoint, the defining feature of an HMO is the concept of a primary care physician.  This doctor is the primary point of contact for all medical needs, and is required to provide a referral prior to patients seeing a specialist.  While this referral system is in place to more efficiently manage costs, limits your flexibility to see a specialist directly.

From a cost perspective, HMOs are more affordable relative to PPOs.  They generally carry a very low deductible, if any at all.  A low deductible can meaningfully reduce your medical costs in a scenario where you are in need of significant medical care.  HMOs will typically have a small co-payment for both doctor visits and prescription drugs.

Preferred Provider Organizations (PPOs)

PPOs are offer greater flexibility in terms of patient care, but have a higher cost when compared with HMOs.

You may have a general physician under a PPO plan, but the plan does not require a referral prior seeking the attention of a specialist.  In addition, PPOs provide some insurance coverage for out-of-network doctor visits, which are not covered at all in an HMO plan.

The increased range of options associated with a PPO leads these plans to be somewhat more expensive relative to HMOs.  These higher costs come in the form of higher deductibles, as well as higher co-payments. 

Bottom Line  

When looking for individual health insurance, both HMOs and PPOs are good coverage alternatives.  To minimize costs, go with an HMO.  To maximize choices, sign up for a PPO.

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