The insurance world is an alphabet soup of acronyms. HMO and PPO are two of these acronyms that you should know and know well. They refer to the two major types of managed health care systems. Knowing what makes them different will help you choose the right plan for your situation.
HEALTH MAINTENANCE ORGANIZATION
An HMO is a health maintenance organization. An HMO typically provides broad health care benefits for lower co-pays and deductibles, but limits your choices of health care providers. The focus of an HMO is early, preventive care. The philosophy is embodied in the structure of the HMO. Lower out-of-pocket costs are thought to encourage early and regular treatment, which could prevent more significant medical problems from arising. Moreover, by requiring that you choose a Primary Care Physician (PCP), all your medical needs start with that provider, which ensures, in theory, that someone who is familiar with your history will see you.
While the lower cost, focused strategy of the HMO might be beneficial to some, if you travel or live in a rural area, or have a special medical condition, an HMO might not be right for you. First, HMOs require that a physician with their “network” treat you. However, there may not be any provider near you that is accepting patients. Second, if you require a specialist, you will first have to be referred by your PCP.
The advantages of an HMO are: less paperwork, fewer expenses, and broader coverage. The disadvantages are: limited choice of provider/service area and require referral to be treated by a specialist.
PREFERRED PROVIDER ORGANIZATION
A PPO is a preferred provider organization. A PPO is like a “buying club” for doctors. Essentially a group of health care providers band together and make an agreement to treat the members of certain other groups (like insurance companies or large employers). The health care providers get more business and the group gets better health care costs.
In a PPO, you pay for medical costs as you go, but at a previously negotiated and reduced rate. However, unlike HMOs, you can seek care from providers outside the PPO group. Your co-pay will often be higher in such cases, but a substantial percentage of your care will be covered.
The advantages of a PPO are: more provider choice and easier access to specialists. The disadvantages of a PPO are: more paperwork when using non-PPO providers and higher out-of-pocket expenses.
Both HMO and PPO provide distinct advantages that will depend on your particular situation and health care needs. When comparing your options, make sure you keep the differences in mind.