HMO vs. PPO

Q: What is the difference between an HMO and a PPO? Which one is better?

Answer:

Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are both types of managed health-care systems. There are differences between the corporate structures of each, but they are typically not important to the average consumer. However, several other important distinctions exist, including the following:

HMO members must choose a primary care physician (PCP) from among the HMO member physicians. The PCP provides general medical care and must be consulted before you can see a specialist, who must also be part of the HMO. PPO members do not choose a primary care physician and can refer themselves to specialists.

HMOs typically provide no coverage for care received from non-network physicians (with exceptions for emergency care while traveling, etc.). PPO members are not required to stay within the PPO network, but there is usually a strong financial incentive to do so. For example, the PPO may reimburse 90 percent of costs for care received within the network, but only 70 percent of costs for non-network care.

HMOs typically do not set deductibles that must be met before insurance benefits begin (e.g., $5 or $10). Instead, HMO members often pay a nominal co-payment for care. In contrast, PPOs sometimes require members to meet a deductible (especially for hospitalization) and may have larger co-payments than HMOs.

So, which is better? Of course, there isn't one right answer; the best choice depends on your particular needs. For example, if you are considering an HMO, it's important to make sure that your physician is part of the HMO network (unless you are willing to see another physician). If not, a PPO might be a better choice, because you can still receive at least partial coverage regardless of network affiliation. You might also prefer a PPO if you have a medical condition that requires specialized care, because PPO members do not need a referral before seeing a specialist. However, if ongoing out-of-pocket costs are a major concern, an HMO is often a better choice, because there are no deductibles and co-payments are typically lower.

If you are fortunate enough to have a choice between HMO and PPO coverage, you will need to take some time to evaluate the coverage offered by each and determine which one best suits the needs of yourself and your family.