Health Insurance 101: PPO vs HMO, Deciphering network choices

Which of the following statements are false?
  • HMOs are small networks
  • HMOs require referrals
  • PPOs are always better
  • POS stands for something that can’t be repeated in this post

Answer? ALL OF THEM! 

Despite the evolution of HMOs (Health Maintenance Organizations) over the years, many people maintain a negative perception of them. In doing so, they often end up selecting costlier plans with benefits that provide no additional value, given their medical needs.  PPOs (Preferred Provider Organizations) and POSs (Point of Service) are often 15% more expensive than their HMO equivalents with no discernible difference in their in-network benefits.

The comments I hear boil down to two basic misconceptions: the network is small, and I have to get a referral from my doctor to see a specialist. Like most myths, these beliefs are rooted in fact. Yes, HMO networks can be small, and many do still require referrals. But these attributes are not universal. One of the most popular plans in Maryland is the BlueChoice Open Access Silver plan, provided by CareFirst. It is an HMO, in that it requires members to use in-network providers to receive benefits. But the network is significant, including every hospital in Maryland and the vast majority of providers. Plus, the “Open Access” indicates that it does not require referrals, so employees are free to see and talk to any provider in-network without having to check with their primary care provider first. Let’s review the 3 main benefits of PPOs over their HMO counterparts.

First, they have a larger network. Depending on the carrier, it could be slightly larger (5%) or significantly larger (50%), but in the case of CareFirst the difference is small. Put another way, the overlap between the HMO and PPO networks is so significant that there’s an excellent chance that any providers you see will participate in both networks.

Second, they almost always provide national network access. So, for clients with employees in other states, having a PPO is a requirement. But it’s also important to keep in mind that emergency services are covered as if they were in-network, anywhere in the country, under most HMO contracts based in Maryland. While it doesn’t accommodate people living outside the area, it is usually sufficient for the family vacation concern.

Lastly, PPOs provide coverage for out-of-network providers. These are providers that are not contracted with the insurance company, therefore are not obligated to accept the discounted reimbursement rates generally negotiated by the insurance company. However, it’s critical that consumers understand that simply having out-of-network coverage does not mean that the care will be covered, or less costly. Not only do most plans have a separate and higher deductible for out-of-network services, but because of balance billing, members can find themselves paying far more than the 20% coinsurance that their benefit summary indicates.

While all three of these features do enhance benefits, the question is: Are they worth the extra premium? The difference in premiums between a carrier’s HMO and PPO options can be significant–as much as 20%. Given that the average annual family premium in the nation is just over $18,000, you could be looking at a difference of $3,600. PPOs typically pay providers a higher reimbursement rate than that carrier’s HMO will, which allows them to recruit more providers and build a larger network. While this is great for their network, this also means that claim costs are higher. This increase, combined with the out-of-network benefit, causes the premiums to be higher, even if the in-network benefits are identical.

So, before jumping on the PPO option, ask yourself a few questions.

  • Are my doctors in the HMO network?
  • Am I comfortable with the selection of doctors and hospitals available under HMO?
  • Do I want to be able to see providers outside the state/area for routine care?

At the end of the day, it’s always a personal choice. Some people simply want the peace of mind that comes with knowing they have access to the largest network of doctors offered. If you only see local doctors that also accept the HMO, then what benefit are you really getting for your extra premium? For many, HMOs are viable, lower cost options that should be part of any benefit conversation.

Brad Leddon, CEBS
Senior Vice President
Coffey & Company, Inc.