When choosing your health insurance coverage each year, you often must decide between two different types—a health maintenance organization (HMO)…or a preferred provider organization (PPO). Even for those sorting through Medicare Advantage offerings…picking from an employer’s menu of benefits options…or seeking a plan through the Affordable Care Act (ACA), the choices often boil down to HMO versus PPO insurance.
This is an important decision—when you select health insurance coverage, both your money and your health are on the line. Unfortunately, while you may have a general sense of what HMOs and PPOs are, you may be unsure about key details—that’s why phrases like “what is HMO” and “what is PPO” are so often searched on Google.
Here’s what you should know when choosing between an HMO and a PPO …
|
|
HMO |
PPO |
|
Out-of-Network Care |
Member pays entire out-of-network provider’s bill out-of-pocket |
Member pays more compared to an in-network provider but not the entire bill |
|
Referrals to Specialists |
Referral from primary-care physician required |
No referral needed for in-network providers |
|
Premiums and Other Costs |
Lower monthly premiums and out-of-pocket expenses |
Higher monthly premiums and out-of-pocket expenses |
HMOs and PPOs diverge in three important ways…
Both HMOs and PPOs have “provider networks”—lists of doctors, hospitals and other health-care professionals that have agreed to offer their services to plan members for pre-negotiated rates. But there’s a key difference when plan members want to see out-of-network providers: A PPO member typically would face somewhat higher out-of-pocket costs for seeing an out-of-network provider than an in-network one…while an HMO member typically would have to pay the out-of-network provider’s entire bill out of pocket. In other words—both PPO and HMO plan participants have a financial incentive to favor in-network providers, but the financial downside for obtaining out-of-network care usually is far greater with an HMO.
Exception: Both HMOs and PPOs generally provide coverage for out-of-network care at in-network rates when a plan member experiences a medical emergency while outside of the plan’s coverage area but inside the US.
When a PPO member requires more specialized care than a general practitioner can provide, he/she typically can simply choose an appropriate specialist in that PPO’s provider network and make an appointment. When an HMO member needs to see a specialist, he typically must obtain a referral from his primary care physician before making that appointment, even if the specialist is in network. This added step is more an annoyance than a barrier to care—primary care physicians almost always provide requested referrals when they’re medically justified. HMOs have this referral requirement to potentially dissuade members from seeing specialists when it isn’t necessary. Still, this can lead to substantial out-of-pocket costs for HMO members who overlook the referral step.
Why would anyone opt for the greater limitations and hurdles of an HMO? Simple—to save money. HMOs often have substantially lower monthly premiums than PPOs, and other costs, such as maximum out-of-pocket expenses, tend to be lower as well. Example: The maximum out-of-pocket costs for an HMO Medicare Advantage plan is capped at $9,350 in 2025, and many insurers have set this figure even lower—often $3,000 to $4,000. The maximum out-of-pocket costs for a PPO Medicare Advantage plan is capped at $9,350—and most PPOs plans have maximums at or near this figure. But the PPO also has an out-of-network max that can be up to $14,000. The dollar figures are different with coverage obtained through employers or the ACA marketplace, but this trend almost inevitably holds true—premiums and overall out-of-pocket costs tend to be substantially higher with PPOs than HMOs. At least that’s true for in-network care—as noted above, HMO out-of-pocket costs can skyrocket when care is obtained out of network.
Ask yourself these two questions…
If there are both HMOs and PPOs available to you that meet both of those criteria, consider both your budget and yourself. If money is tight and/or you’re willing to jump through some hoops and follow potentially frustrating rules to trim costs, an HMO might be appropriate…but if you’re not willing to accept annoyances in exchange for savings and/or you’re not great at carefully following rules, then a PPO might be the better choice.
