Health maintenance organization (HMO) and a preferred provider organization (PPO) are both managed health care organizations. Though both types of health care organizations operate similarly, there are distinct differences.
HMOs
Unlike traditional insurance plans, an HMO provides health care to its members by linking them with doctors who have also joined the HMO organization.
PPOs
A PPO functions similarly to an HMO in that it connects members who pre-pay for their health care with a network of doctors who have also joined the PPO organization. However, unlike HMOs, which are open and oftentimes required for employers with 25 or more full-time employees, a PPO is a third-party provider, and is frequently contracted by insurance providers to provide services to their members.
Benefits of a PPO
A PPO generally allows for a greater degree of flexibility and choice in health care options for its members than an HMO. A member of a PPO may choose to seek health care from a service provider who is not in the PPO network, although there may be greater financial incentives to use the PPO provider. Additionally, co-payments, deductibles and other out-of-pocket expenses are generally limited with a PPO.
Disadvantages of a PPO
When compared to an HMO, PPOs also have a few disadvantages. If a consumer seeks to use a non-PPO service provider, the PPO offers fewer financial reimbursements. This greatly limits the consumer's non-PPO choices. There is more paperwork involved in securing a reimbursement with a PPO, and in situations where a co-pay is required, these payments are generally higher than with an HMO.
HMO Advantages
When you join an HMO, you choose a primary care physician (PCP) who is the first professional that you consult for all medical needs. Your PCP is the one who will evaluate if you should seek additional treatment and where. This point of contact helps to hold down the price of an HMO. Additionally, because HMOs require a monthly fee, there are no deductibles to meet. Unlike PPOs, there is a focus on preventative care and early detection and treatment, with no limit on lifetime benefits.
HMO Disadvantages
Because of the rigid gatekeeping by the PCP to hold down costs, members of HMOs have often had trouble seeking specialist care. Also, non-HMO physicians are often not covered by an HMO.
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