If you’re choosing between a few different health insurance plans, two terms will pop up: HMO and PPO.
Before you can pick the best one for you, you first have to know the differences between the two. They each have their own advantages. Investopedia’s Stephanie Barton explains what they are:
Health Maintenance Organizations
With fees for indemnity insurance taking a bigger bite out of consumer wallets, a new system emerged to control costs: The health maintenance organization (HMO). HMOs sign contracts with specific doctors and hospitals, and that group becomes the plan’s network.
With an HMO, you may have no deductible and your co-payments are usually low. You pay a monthly premium and your HMO covers doctor visits, hospital stays, emergency care, lab tests, X-rays, and therapy. You choose a primary care physician who oversees your medical care, but you must get a referral from your doctor to see a specialist. You cannot visit a doctor or hospital outside of your network if you want your insurance to cover the visit.
This is the simplest and cheapest form of insurance, and it most benefits those who are healthy and not supporting anyone but themselves. HMOs are meant to provide preventive care: You visit your primary care provider regularly, so you can nip any health problems in the bud and thus avoid the expense of specialists.
Preferred Provider Organizations
Preferred provider organizations (PPOs) combine HMOs and indemnity plans. You can visit your primary care provider and your plan should pay for your total visit. Or, you can visit a specialist—within the network, but without a referral—and your plan should pay at least part of your bill.
To learn more about PPOs, check out The Wall Street Journal’s explanation here.
Knowing the difference can save you a lot of money!