Health Maintenance Organizations, or HMOs, and Preferred Provider Organizations, or PPOs, are health insurance plans that fall under a category called “managed care.”
These plans attempt to control premium costs by restricting their plan members to the lower-cost care providers in a given area. Both HMOs and PPOs may be excellent choices for those who need access to medical care frequently.
HMOs and PPOs keep costs down largely by contracting with a limited number of physicians, hospitals and clinics. An established HMO or PPO can bring a steady stream of patients to any provider in its network.
The smaller the network, the more significant the patient flow is to the providers in the network. In return for the steady flow of patient referrals from the plan, care providers routinely give deeply discounted pricing for services rendered to members of the HMO or PPO.
If managed care plans did not contract with a relatively limited number of providers in each category, they would have less power to demand price concessions from them.
HMOs tend to be somewhat lower in cost than PPOs – in part because primary care physicians have cut down on unnecessary expenditures on specialists.
Both HMOs and PPOs tend to put more emphasis on preventative care rather than on other more traditional forms of insurance.
Because of the reliance on limited networks to provide care, managed care plans are able to streamline billing practices.
They bring all medical expenditures under one roof, which can greatly simplify the billing experience – especially compared to an indemnity-type plan, which may require many documents and receipts.
With HMOs and PPOs, you deal with a single billing system and a single point of contact. Much of the claims procedure will be invisible to you because your doctor’s office staff will handle the back-office procedures of billing and claims.
Network-based plans may not be suitable for those who live in very remote areas, simply because there are fewer physicians in the area. HMOs and PPOs tend to work better in urban areas, with a high concentration of physicians and other care providers.
If it is very important to be able to keep going to a specific doctor, and that doctor is not in the network, traditional fee for service or indemnity insurance plans may be a better choice than managed care plans.
With an HMO, the patient must go through a designated primary care physician, or PCP. This physician acts as a sort of ‘gatekeeper’ to the health care system. He or she is the doctor primarily responsible for coordinating medical care when it involves many different providers. To see a specialist, HMOs generally require a referral from the primary care physician.
Like HMOs, preferred provider organizations also direct plan members to a restricted network of plan providers. If you seek care outside of the network for non-emergency services, you will likely have to pay more out of pocket, either via higher co-pays or increased co-insurance.
And like HMOs, PPOs may decline to pay the claim for out-of-network care entirely, depending on the terms of your insurance contract.
The difference between HMOs and PPOs is in the role of the primary care physician. A PPO network does not require members to obtain a referral from a PCP before seeing a specialist. You are free to make an appointment with a specialist directly.