What's the difference between an HMO and a PPO?

Tamara E. Holmes

The type of health insurance plan you choose affects the care you receive and the amount of money you pay, yet an Aetna survey suggests that 30 percent of Americans are confused about differences between plans like HMOs and PPOs. Such confusion can be costly.

"People often use words interchangeably that in the insurance industry are very different," says Renee Guariglia, executive vice president of Falcone Associates Inc., an insurance agency in New York. For example, someone might refer to his own plan as a PPO when it's actually an HMO. But if someone thinks those terms refer to the same thing, "when a claim occurs, they're going to be saying, ‘This is not what I bought,'" Guariglia says.

Some health insurers are taking extra steps to help consumers to get a better grasp on the nuts and bolts of their health insurance options. For example, Aetna recently redesigned its Plan for Your Health website to better explain complicated concepts, spokesman Ethan Slavin says.

In the end, though, it's up to consumers to make sure they know the pros and cons of each type of plan before signing up for health insurance, Guariglia says.

Assessing the differences

While HMOs and PPOs both provide access to health care providers and prescription drug plans, they do so from different vantage points.

  • HMOs require consumers to get care from providers that are part of the plan's network. If they go to a provider outside the network, they must foot the entire bill. Consumers also must pick a primary care physician who coordinates all patient care, so that physician would have to approve any office visits to specialists in the network. Consumers may have to make a co-pay when they see a physician, but there's typically little paperwork involved and claims for medical services rarely have to be filed.
  • Like HMOs, PPOs make use of provider networks. However, consumers don't need to get permission from a primary care provider to visit specialists within the network. The other major difference: Consumers still have coverage if they choose providers outside the network, although they must pay a higher percentage of the cost. When using a PPO, you may have to file more paperwork or file a claim, depending on whether you use an in-network or out-of-network provider.
  • A third option is the point of service, or POS plan, which combines some of the characteristics of HMOs and PPOs. Such plans make use of a primary care physician who still must refer you to specialists, but they offer some coverage for providers outside the network.
  • Exclusive provider organizations, or EPOs, are similar to HMOs, in that consumers must get their coverage within a network. However, an EPO consumer can see an in-network specialist without a referral from a primary care physician.

Making a choice

When it comes to quality, all of the plans typically offer wellness programs, as well as disease management. But with PPOs, you get the chance to choose any health care provider you want. This could be important to you if you have a favorite doctor, or you have a medical condition and you don't want to change providers, Guariglia says.

Another thing to consider: If you or a family member is diagnosed with a serious condition, will your plan allow you to see the best physician possible? "For some, it's disturbing if they've had a situation in their family or they know someone close to them who wanted to see the best of the best only to find out that doctor was not in their network," Guariglia says.

Some people may not like the idea of needing a primary care physician to approve any visits to a specialist. In that case, EPOs and PPOs may be better choices.

However, for most people it comes down to what they can afford, says Robert Giordano, an independent insurance agent in New Jersey. In terms of cost, HMOs win hands down. In fact, the difference between an HMO and a PPO could be a couple of thousand dollars in premiums over the course of a year, Giordano says. HMOs also typically have lower deductibles - the amount you must pay before the insurance coverage kicks in - than PPOs, according to a 2011 analysis of health care plans by Consumer Reports.

In today's economy, cost is playing more of a role in health care consumers' decisions than in years past, Guariglia says.

"You have to ask yourself, ‘Can I realistically afford to have twice the deduction from my paycheck for that comfort of having coverage for a non-participating provider?'" she says.

Whatever you settle on, make sure you understand all of the intricacies of the plan. "If in doubt, ask," Guariglia says.