People across the country are signing up for health insurance before the new year. While healthcare acronyms and jargon can get confusing, it’s important to understand the basics so you can choose the best plan for your needs.
We’re here to demystify the top two healthcare plans: HMOs and PPOs.
What is an HMO?
With a health maintenance organization (HMO) plan, you designate a primary care physician (PCP), or primary care provider, to be the coordinator of your care. All healthcare services are coordinated between you and your PCP.
You are required to choose a PCP from within a network of local healthcare providers, who would then refer you to in-network specialists.
An HMO does not cover out-of-network providers, except in case of emergencies. Know what your HMO plan covers. Emergency room copays are often significantly higher than PCP copays.
If you are admitted to a hospital that is out-of-network, insurance will not cover the cost of your care. That’s why it’s important to contact your PCP if you are being admitted.
Despite some restrictions, lower monthly premiums and lower out-of-pocket medical costs make HMO plans a popular choice.
Pro: Typically, lower premiums. Coordinated care through your PCP.
Con: Most restrictive plan. Limited choice of providers. Out-of-network care is probably not covered.
What is a PPO?
With a preferred provider organization (PPO) plan, you are not required to designate a PCP. Under a PPO, you would not need a referral to see specialists, and you are free to visit out-of-network specialists, doctors, and hospitals.
Keep in mind that visits to out-of-network providers mean higher costs for you. You will pay higher monthly premiums for this flexibility, but many people find the PPO is the best healthcare plan for their needs.
Pro: Greater flexibility than HMO. Lower out-of-pocket costs than fee-for-service plans. Typically, larger provider network.
Con: Typically, higher premiums than HMOs. Hard to predict costs unless you stay within network. Reimbursement for out-of-network coverage can get complicated.
Both HMOs and PPOs are designed as managed care plans, which means the insurance company has negotiated lower rates with a group of doctors, hospitals, and other providers. This is called the network.
Additional Health Plans
There are other types of healthcare plans, including EPO (exclusive provider organization), POS (point-of-service), and a newer option called HDHP (high deductible health plan) coupled with a savings account, but the main types you can choose from are HMOs and PPOs.
HMO vs PPO — Which Should You Choose?
It’s hard to know which health insurance plan is best for you because it depends on plan specifics, network options, anticipated healthcare needs, and personal preferences.
The main difference between the two is that PPOs will cover you if you use an out-of-network doctor or hospital (for an additional cost) while HMOs only cover your care if the provider is in network.
According to the Kaiser Family Foundation’s 2018 Employer Health Benefits Survey, the average annual premium of an employer-sponsored PPO plan was $7,149, while the average cost of an HMO plan was $6,869.
PPOs are the most popular plan type, “enrolling 49% of covered workers in 2018. 29% of covered workers are enrolled in a high-deductible plan with a savings option (HDHP/SO), 16% in an HMO, 6% in a POS plan” (Kaiser Family Foundation).
Take the following factors into consideration when evaluating your healthcare plan options:
- Out-of-pocket maximums
- Co-insurance (percentage of costs you pay after deductible is met)
- Prescription drug coverage
- Provider network
Read the plan summary to see exactly what’s offered, including how much you would pay for out-of-network care under a PPO plan.
If you have an HMO available to you with good doctors and hospitals, plus significant savings, this may be the choice for you. If you want more flexibility when it comes to provider options, a PPO plan is probably best.
With a PPO, you can see out-of-network doctors for a higher cost, which is better than not being covered at all. Unlike PPOs, HMOs do not include out-of-network benefits.
HMOs are generally less expensive than PPOs, but you need to ask yourself if the savings are worth the restrictions.
Speak with an Employee Benefits Expert
As a business owner, you want to make smart healthcare decisions for your employees and business. Small and midsize businesses are more likely to offer a PPO than an HMO, but they both remain popular choices.
Transfer the burden of HR and healthcare responsibilities to a Certified Professional Employer Organization, such as Resourcing Edge.
Resourcing Edge provides our clients access to Fortune-500 employee benefits plans.
We offer our clients national benefit plans from leading insurance carriers such as UnitedHealthcare and MetLife. Resourcing Edge is one of a select few PEOs that has partnered with UnitedHealthcare to offer a wide assortment of fully-insured, ACA-compliant, national medical insurance plans. We have also partnered with MetLife to provide high-quality national dental, vision, disability, and life insurance plans.
We take care of everything from payroll and workers’ compensation to benefits administration and ACA compliance. Rely on our full-service HR and legal team so you can focus on your business.
Questions? Resourcing Edge is happy to help.