Editor’s Note: Hey guys, right now I’m sitting on the edge of a volcano looking down at the amazing caldera views of Santorini. Everything they say about the views, the food, the sunset, it’s all true. Stay tuned for my honeymoon trip review when I get back and I’ll tell you guys all about it!
In the mean time, we have a post from my friend Derek at FinanceQA. Derek has been blogging and working in the online sphere for almost 10 years so I hope you guys enjoy his answer to the following question:
Kathleen D. from Fairbanks, Alaska asked the following question
I am currently shopping for health insurance and frankly, I am overwhelmed by the different kinds of plans available. In particular, I am a little bit confused by two main terms, HMO and PPO. What is the difference between HMO and PPO?
Health Maintenance Organizations or HMOs and Preferred Provider Organizations or PPOs are two kinds of managed care plans in the realm of health insurance. A common feature of managed care plans is that they contract with a network of healthcare providers, such as physicians, clinics, hospitals, pharmacies and others to provide services to their policyholders. In both HMOs and PPOs, plan holders pay monthly premiums as well as a copayment for each visit. However, these managed care plans differ from each other in terms of how the services are dispensed.
In an HMO, you will be required to get your healthcare services from the plan’s specified network of providers. You will also be asked to choose your primary care physician who will act as your personal doctor and give you the basic healthcare services you need. Your primary care physician will also be responsible for referring you to specialists or other providers within the network or giving a request to have a laboratory test performed.
An HMO generally gives the most affordable and hassle-free coverage for policyholders. The downside with HMOs is that it limits your choice of physicians. If you also opt to get covered by a physician that is not included in your provider network, you can expect to pay more.
A PPO, on the other hand, operates by having a network of “preferred” providers that policyholders can select from. It differs from an HMO in that it does not require the plan holder to choose a primary care physician. If you have a PPO, you can also see any healthcare provider in the network without the need for a referral. One advantage of a PPO is that its network of doctors is often more extensive than that of an HMO. You can also see doctors outside of the network anytime you want to.
However, premiums in a PPO are generally higher compared to that of an HMO. Also, the out-of-pocket payments you make each time you visit a doctor is also typically more than if you were enrolled in an HMO. If you see providers that are outside the PPO network, you can expect to make higher payments as well. In addition to copayments some PPOs also require annual deductibles for services offered both in the network and out of it.
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HMOs and PPOs also differ in terms of how services obtained by policyholders out of the network are paid for. If you are enrolled in an HMO, you are basically not covered if you got services outside of the provider network unless these are care that the HMO does not offer. That means that you’ll have to be shouldering the cost on your own. If you signed up with a PPO, however, and you obtained care out of the PPO network, part of your care will be reimbursed for as long as you have met the annual deductibles and coinsurance. You will still need to pay the healthcare services provider upfront and then file a claim for reimbursement with your PPO.