Define HMO and PPO

HMO and PPO plans are designed to lower health care costs for individuals and families.

Health care costs can take up a substantial chunk within a household budget when medical problems arise. Health care plans are designed to reduce expenses by spreading costs across a membership base. HMO and PPO are two different types of managed care health plans that differ in terms of cost and accessibility.

Managed Care Plans

Managed care plans are made up of a network of facilities and providers that have been contracted to provide medical care for eligible members at reduced costs, according to the American Institute of CPAs. Networks consist of doctors, hospitals, labs and clinics that provide approved medical services at agreed-upon costs. Managed care networks are designed to monitor the type of care being given and prevent unnecessary services from being administered. Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) are different types of managed care networks.

HMO Networks

HMO networks coordinate all services and billing through one central organization, according to the American Institute of CPAs. Services are provided under contract, so all facilities and health care providers either work for the network or are under contract with the network. Members pay a set premium every month. Eligible members can receive both inpatient and outpatient care at any hospital, pharmacy or clinic that is a part of the network.

HMO Costs

HMO plan costs are the lowest of all the managed care plans, according to InsureLane. These plans carry no annual deductible, so benefits start immediately. Co-payments are required for doctor and hospital visits, though these amounts are generally low compared to other managed care plans. These low costs are made possible by the manner in which the network is run. HMOs are the most restrictive in terms of how covered services are administered. Members can only see providers within the network, and any referrals to a specialist must be made by the primary physician.

PPO Networks

PPO plans also provide health services through a network of doctors, hospitals and health care providers. They differ from HMOs in that members have the option of going outside the network. Services provided by non-network providers might still be covered under a PPO, though out-of-pocket costs will be higher, according to the American Institute of CPAs. Full coverage benefits only apply when members use providers who are contracted by the network.

PPO Costs

Unlike HMOs, PPO plans require an annual deductible be paid before benefit coverages take effect according to InsureLane. Deductible amounts can range anywhere from $500 to $2,000 depending on the conditions of the plan. Monthly premium costs are typically higher with PPO plans as well. Members receive a pre-approved listing of providers and receive full benefit coverage when they stay within the network. The option to use providers outside of the network allows members more flexibility, which is why these plans are more expensive.

References

• InsureLane: HMO vs PPO
• American Institute of CPAs: What's the difference between and HMA and a PPO?

Resources

• MedlinePlus: Managed Care