What a preferred provider plan is
A preferred provider plan, commonly called a PPO, is a health plan that has a network of contracted providers but also lets you see providers outside that network. In-network care generally costs you less because the plan has negotiated rates. Out-of-network care is often still partly covered, though you typically pay more for it.
The name and exact design differ by insurer and place, and the specifics of any plan are set out in its own documents. This article is general information, not insurance, medical, legal or financial advice.
How PPOs typically work
- A network with a price incentive. You are encouraged to use preferred providers through lower cost sharing, rather than being restricted to them.
- Direct access to specialists. Many PPOs do not require a primary care provider or a referral to see a specialist.
- A deductible. PPOs commonly have a deductible, sometimes separate for in-network and out-of-network care.
- Copays and coinsurance. After the deductible, you may pay a flat fee for some services and a percentage for others.
- Separate limits. The out-of-pocket maximum for out-of-network care is often higher than the in-network limit, or may not exist, so read the plan summary carefully.
- Claims for out-of-network care. You may need to pay the provider and then file a claim, or the provider may bill the plan, depending on arrangements.
Potential advantages
Freedom of choice
The main attraction is flexibility. You can see a specialist without a gatekeeper, and you can choose a provider outside the network if there is a reason to, such as an established relationship or a specialized service. For people who want to keep control over who treats them, that is a significant benefit.
Easier to keep your doctor
If your current doctor is not in the network, a PPO may still help you continue seeing them, albeit at a higher cost. That can matter for continuity of care, particularly during treatment.
Useful when you travel or live in several places
Because out-of-network coverage often exists, a PPO can be easier for people who spend time away from home, or who have family members in different locations such as students away at school.
Less up-front friction
Skipping referrals can mean fewer steps and quicker appointments. Some members value the sense of direct access.
Potential drawbacks
Higher costs
The flexibility generally shows up in the price. Premiums are often higher than for a more restricted plan like an HMO, and deductibles and coinsurance may be higher too. Going out of network can be considerably more expensive.
Out-of-network surprises
Using out-of-network providers can lead to balance billing, where a provider charges the difference between what they bill and what the plan allows. The allowed amount is the figure the plan uses to calculate payment, and it may be lower than the provider’s charge. Rules that restrict surprise billing exist in some places but not all, and they do not cover every situation.
More paperwork
When you use out-of-network providers, you may need to file claims yourself and keep track of what counted toward which deductible. A good grasp of how to file a claim and read an explanation of benefits makes this easier.
Complex cost structure
Separate in-network and out-of-network deductibles and limits can make the true cost of care harder to predict. It is easy to assume a visit is covered at the in-network rate when it is not.
Networks still matter
Even in a PPO, being in network is the way to get the best price. A narrow network can still limit your options, and providers can leave the network during the year.
A hypothetical illustration
The following figures are invented. Imagine a plan that pays 80 percent of the allowed amount in network and 60 percent out of network, after the deductible has been met. For a procedure with an allowed amount of 1,000, the plan would pay 800 in network, leaving the member 200. Out of network, with the same allowed amount, the plan would pay 600, leaving 400, and a provider who bills above the allowed amount might charge the member the excess too. The same procedure can thus cost the member considerably more outside the network, even though the plan covers part of it.
Who PPOs tend to suit
In general terms, a PPO is often considered by people who:
- want to see specialists without referrals,
- have doctors who may not be in a given network,
- travel frequently or live partly elsewhere,
- or are willing to pay more each month for flexibility.
It may be less attractive to people who mainly want the lowest premium, are comfortable with a restricted network, or want the predictability of flat copays.
How it compares
PPOs and health maintenance organizations are often contrasted: PPOs trade lower cost for freedom, and HMOs the reverse. A direct HMO versus PPO comparison walks through the differences, and EPO and POS plans combine some features of both. Because these labels do not always have a consistent meaning, check each plan’s actual rules.
Questions to ask
- Which of my doctors and hospitals are in the network?
- What are the deductible and out-of-pocket limits for in-network and out-of-network care?
- How does the plan calculate what it pays for out-of-network services?
- Do I need approval for certain services?
Your insurer, benefits office or a licensed advisor can provide plan-specific answers, and the results of using any plan depend on the care you end up needing.