PPO vs HMO
In the United States, there are two basic types of managed health care plans. Most people who have employer-provided insurance are on health maintenance organization (HMO) or preferred provider organization (PPO) plans.
Additionally, many self-insured people are on one of these managed care plans. The basic difference between the two options is that the HMO restricts members to its network of hospitals and health care providers. A PPO allows members to choose their doctor, hospital or other health care service provider from within the PPO network, but they also have the option of seeing others that are not in the network.
Health maintenance organizations (HMOs)
An HMO is a managed care organization (MCO) that provides health care services for those on connected insurance plans. HMO-like services began appearing in the early part of the 20th century and they started becoming popular after the Health Maintenance Organization Act of 1973.
The new legislation required employers with more than 25 workers to offer HMO plans with federal certification. With an HMO, those covered must choose a primary care physician (PCP) to manage their health care.
The PCP has primary responsibility for the patient and serves as the personal physician. The PCP also arranges assistance from other health care providers when needed. The PCP typically is a general physician although it is possible to pick a doctor with more specialized skills.
Generally, when patients need specialized care, the PCP will provide referrals. Doctors and other health care providers may work directly for an HMO, or they may be part of a network of HMOs. In the latter case, the same doctor may provide services for people with different HMO plans. The idea behind the HMO is to provide consumers with cost savings and structure.
Preferred Provider Organizations (PPOs)
A PPO is a network of physicians, hospitals, labs and health care facilities that contract with the insurance company offering the managed health care plan. All the health care providers agree to a set rate under the PPO scheme.
The PPO provides more flexibility to patients as they can choose from a pre-approved list of doctors and other care providers. They typically do not need to select a primary care doctor and they also have the option of seeing doctors not in the PPO network.
If they seen a non-networked doctor, then they typically must pay their co-pay during the visit. Additionally, the PPO normally will only cover a specific percentage of costs when members see doctors that are not part of their network.
PPOs first started appearing as competitors to HMOs in the late 1970s to provide consumers with more options.
Advantages and disadvantages of HMOs
Among some of the main advantages of health maintenance organizations are:
• Patients have a primary care physician with whom they can build a long-term relationship.
• Typically, the co-pay is low with no deductible. Prices for prescriptions are also low as the HMO can take greater advantage of bulk rates. Therefore, HMOs are good for budget-conscious consumers.
The disadvantages of HMOs include:
• HMOs tend to have many rules including restrictions on doctors that the patient can see. They are also restricted in the hospitals, labs and other facilities that they can use. In order to see a specialist, the PCP must provide a referral.
• HMOs can be more fussy on who they accept into their program. For example, people with preexisting conditions may have to pay more although Obamacare will prevent companies from withholding coverage in the future.
• One of the ways that HMOs can reduce costs is through efficiency in treating a higher volume of patients. What this means is that doctors must meet certain quotas of patients that they see on a daily basis. If they fail to meet their quotas, they could suffer penalties or even removal from the HMO. For this reason, doctors may be in a hurry when seeing patients.
Advantages and disadvantages of PPOs
The advantages of preferred provider organizations include:
• More flexibility in choosing one’s doctors and other health care providers. In addition to not having to choose a primary care physician, those covered by the plan can even choose providers from outside of the PPO network although they may have limited coverage for these visits and treatments.
• Patients do not need referrals to see specialists.
• As there are fewer rules and less paperwork, members of PPO plans can usually get faster treatment than those on HMO plans.
Some of the disadvantages of PPOs include:
• Co-payment for PPOs is usually higher than that for HMOs. A normal PPO may require the patient to pay 20 percent of all medical fees.
• PPO plan members may also need to pay a deductible before their coverage benefits begin.
• With a PPO, the patient may feel that they have more responsibility for managing their own health care.
Choosing the right plan
For consumers, the choice between an HMO and a PPO will depend on personal preferences along with budget considerations. For those who definitely want the most economical option, then HMOs are the way to go.
However, for people who are willing to spend the money for more choices, PPOs provide more flexibility. The PPO is particularly good for people who like to see specialists with the least amount of restrictions. Remember though, that seeing a specialist outside of the PPO network can become quite costly. The insurance company may have a preset limit on benefits for such visits.
Another problem with seeing providers outside of the PPO network is that it usually requires that the person file a claim for reimbursement.
HMOs have a more structured approach with a PCP and the only charges involved are copayments for doctor’s visits, treatments and prescriptions. With PPOs, the patient must pay a copayment and sometimes also a deductible so long as they stay within the network. For out-of-network visits, prescriptions and treatment, the patient will also pay coinsurance. For example, the PPO may pay 60 percent of the out-of-network bill after the deductible while the patient pays the remaining 40 percent.
In general, wealthier people may choose PPO plans while budget-minded consumers will usually prefer HMOs. However, for those who need to see specialists often, the PPO plan may be preferable despite the additional costs.