This is general information, not insurance, medical, legal or financial advice. Plans labeled HMO or PPO vary by insurer, employer, state and country. The descriptions below are typical patterns, not guarantees about any specific plan.
Two ways to organize a network
A network is the set of doctors, hospitals and other providers that a plan has agreed terms with. HMO and PPO describe two common ways of setting rules around that network.
- HMO (health maintenance organization). Tends to put more structure around where and how you get care, often in exchange for lower costs.
- PPO (preferred provider organization). Tends to allow more freedom to choose providers, often in exchange for higher premiums or cost-sharing.
Each has its own pros and cons, which are covered in separate pieces on health maintenance organizations and preferred provider plans. This article focuses on the comparison itself.
How an HMO typically works
- Network required. Care is generally covered only from in-network providers, except in emergencies or other situations the plan specifies.
- Primary care provider. You usually choose one, and that person coordinates your care.
- Referrals. Seeing a specialist commonly requires a referral from your primary care provider. The rules for this are explored under referrals and primary care gatekeepers.
- Cost. Premiums and cost-sharing are often lower than a comparable PPO, though that is not always the case.
- Paperwork. In-network providers normally file claims for you, so there is usually little for you to submit.
How a PPO typically works
- Network with flexibility. You get the best coverage inside the network, but the plan generally covers some out-of-network care, at a higher cost.
- No required primary care provider. You can usually see specialists without a referral.
- Separate cost levels. In-network and out-of-network care frequently have separate deductibles and coinsurance percentages. That is one reason out-of-network care deserves its own explanation.
- Cost. Premiums are often higher than for a comparable HMO, reflecting the added flexibility.
- Balance billing. If you go out of the network, the provider may be able to bill you for the difference between its charge and the plan’s allowed amount, depending on local rules.
Side by side
| Feature | HMO | PPO |
|---|---|---|
| Out-of-network non-emergency care | Usually not covered | Often partly covered, at higher cost |
| Primary care provider | Usually required | Usually not required |
| Specialist referral | Commonly required | Usually not required |
| Premium | Often lower | Often higher |
| Flexibility | Lower | Higher |
A hypothetical comparison
Suppose a hypothetical person with a recurring skin condition wants to see a particular dermatologist.
Under an HMO, they would typically check whether the dermatologist is in the network, then visit their primary care provider for a referral. If the dermatologist is in the network, the visit is covered with the plan’s regular cost-sharing. If not, the plan probably does not pay.
Under a PPO, they could book directly. If the dermatologist is in the network, the visit is covered at in-network rates. If not, the plan may still pay part, but the person may face a separate deductible, a higher coinsurance percentage and possibly a bill for the difference between the charge and the allowed amount.
What else can differ
- Premium versus total cost. A lower premium does not always mean lower total spending. Look at the deductible, copays, coinsurance and out-of-pocket maximum, as well as your expected use of care.
- Service area. HMOs are often tied to a geographic area. If you travel often or live in two places, ask how out-of-area care is handled.
- Network size and quality. Networks differ between insurers and between plan products from the same insurer. An HMO from one company may have a broader network than a PPO from another.
- Prior authorization. Both structures may require approval for certain services. Check the rules for the services you are likely to use.
- Prescription coverage. Drug lists and tiers vary regardless of plan label.
Choosing between them
Because labels are only a starting point, it helps to check practical points:
- Are your current doctors and nearby hospitals in the network of each option?
- How often do you see specialists, and would a referral step be a nuisance or a help?
- Do you expect to need care outside your home area?
- How do the total costs compare for a typical year and for a bad year, using the out-of-pocket maximum as the ceiling?
- Does your employer contribute differently to each option? Contributions can change the real price gap.
For a general list of ways to weigh these questions, see coverage options. If you already have a plan and a doctor leaves the network, see the discussion of provider continuity in other guides. Whichever you pick, confirm the details in the policy documents rather than relying on the label alone.