HMO vs PPO: Which one is best for you?

Knowing the difference between HMO and PPO insurance can help you decide how to make an important choice.

Man receiving test at health care facility.

Choosing a health insurance plan to suit your budget and needs can feel overwhelming. You'll wade through paperwork, consider premiums, copays, deductibles and compare the benefits of various plans and tiers.

Whether you're selecting an employer-sponsored plan or purchasing a private policy, one important consideration is whether you'll join a preferred provider organization (PPO) or a health maintenance organization (HMO). These types of plans cover most Americans.

If you’re wondering about the right type of health insurance plan for you, here is a quick rundown of two popular options and the difference between PPO and HMO insurance.

What is PPO insurance?

A PPO insurance plan gives greater choices. You don't need a referral from a primary care physician to see most specialists, and you can visit providers not contracted by the insurance company.

Something to consider: If you receive treatment from an out-of-network provider, your out-of-pocket costs may be higher. Generally, you pay the provider directly and then file a claim to get some or most of the expenses repaid by your insurance company. If the provider files the claim on your behalf, you may be responsible for a higher coinsurance amount.

In addition to a monthly fee (called the premium), you may also pay a deductible. This is the amount you must pay before the insurance company coverage kicks in. For example, with a $1,000 deductible, you pay the first $1,000 of covered services in a year. Out-of-network costs may not count toward the deductible.

Once you reach your deductible, you'll only make copayments (a flat fee per visit) or pay coinsurance (a percent of charges) for services until you reach an annual out-of-pocket maximum. Once you reach your maximum, you no longer have out-of-pocket costs for the year.

What is HMO insurance?

Most HMO insurance plans require a primary care physician to manage care and provide a referral for any visit to a specialist. HMOs usually require the insured to receive treatment within the contracted network, generally limited to a specific geographic area, or risk having to pay 100% of services out of pocket.

The benefit of HMOs? You often pay less for premiums, copays and deductibles (if the plan has one). By only allowing for in-network visits, the insurance company can negotiate lower rates with its contracted providers to keep costs down for the insured. No out-of-network visits also means never having to file claims.

Making the choice

When it comes to the differences between HMO and PPO health insurance, think about your family's specific medical needs and budget limits. The choice boils down to a comparison of out-of-pocket expenses, including monthly premiums, and annual out-of-pocket maximums such as deductibles and copays. In addition, understanding basic health insurance terms may help you with this decision.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

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