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HMO vs PPO: Which Is Right for You?

If the thought of picking out a health insurance plan sounds about as exciting as getting a root canal, well, you’re not alone. HMOs, PPOs, HDHPs, HSAs, FSAs—so many acronyms, so little time! It can leave even the biggest money nerd crying, “Uncle!”

No need to beg for mercy here though. We’re going to break down the difference between HMOs vs PPOs, two of the most common types of health insurance plans out there. Then you can pick your plan and rest easy knowing you’ve made the right decision for you and your family.

HMO Health Insurance Plans 

A Health Maintenance Organization, or HMO, is only going to cover your care when it’s provided by doctors who work for or who are contracted with your specific plan. Visit a doc out of your network and expect to pay for the whole shebang. Generally, the only exception to this rule is in the case of an emergency.

HMOs are often limited to a specific geographic area which may require you to live or work within that area in order to be eligible for coverage. With lower premiums and lower out-of-pocket expenses, they also tend to be a better fit for healthy folks who don’t anticipate needing a lot of specialized health care throughout the year. If you need to see a specialist, you’ll have to get a referral from your primary care physician (PCP) first.

Take Matthew for example. Matthew is 35 and healthy with no preexisting conditions or ongoing medical concerns. He enrolls in his company’s HMO plan where he pays a low monthly premium and has no annual deductible to meet. But when Matthew gets the flu on vacation 400 miles from home, his trip to the doctor is considered out-of-network and he has to foot the entire bill. Had he been at home when he got sick, he could have seen an in-network provider for the flat rate of his copay.

Still a little sideways on HMOs? Think about it like this: HMO is short for health maintenance. So, this type of health insurance is a good fit for people looking to maintain their health because, for all intents and purposes, they’re already healthy. HMOs focus on prevention and wellness, rather than specialized care.

PPO Health Insurance Plans 

A PPO, or Preferred Provider Organization, is typically the most popular type of plan for anyone getting their insurance through their employer. PPOs mean you pay less for covered services when you use providers in your plan’s network, aka preferred providers. You can still use out-of-network providers, but you will almost always have to pay more (though not necessarily 100% like with an HMO).

One of the biggest selling points of a PPO (in addition to a greater selection of providers) is that you don’t have to see a PCP to get a referral to a specialist. With specialists already included in your preferred provider network, you can skip the middleman and head directly to the specialist you need.

Rebecca is 50 and was diagnosed with Type I diabetes in her teens. Her disease is under control, but she does need to stay in regular contact with her endocrinologist. Because Rebecca is enrolled in a PPO, she doesn’t need to get a referral from her PCP in order to see her endocrinologist.

But let’s say Rebecca’s specialist makes some changes in her office and her practice is no longer in-network. Another benefit of a PPO is that Rebecca can expect fewer restrictions on out-of-network providers should she decide to stick with her current specialist. She might have to pay more to see her favorite doc, but it probably won’t be 100%.

7 Differences Between an HMO vs. PPO 

If the alphabet soup of health insurance jargon still has you scratching your head, take heart. Let’s take a look at some of the most common differences between these two types of health insurance plans.

1. HMOs have lower premiums and out-of-pocket expenses but less flexibility. 

The biggest draw to HMOs are the lower premiums and out-of-pocket expenses. But the premium—the amount you pay each month for health insurance—is lower in part because you have a smaller pool of providers to choose from, which means less flexibility in where you can go for care. An HMO requires that you get a referral to an in-network specialist from your PCP.

Translation: Your HMO keeps tabs on what they think is a medically necessary service, which helps them monitor and maintain overall plan costs.

2. PPOs have higher premiums but more flexibility.

While you can expect a higher monthly premium with a PPO, you can also count on a greater selection of providers and the freedom to see a specialist without a referral from your PCP. If you see specialists frequently or want to have fewer restrictions on out-of-network providers, this is the plan for you.

3. HMOs have a low or no annual deductible.

Another key selling point to an HMO is its low or no annual deductible. That means the amount you have to pay before coverage kicks in could be as little as zero bucks.

4. PPOs typically have a higher deductible but there’s a reason why.

With a PPO, the deductible (like the monthly premium) is typically higher than an HMO. Why? Well, you’re paying for access to a greater network of providers and more flexibility with who you can see and where you can see them.

5. Count on a copay with an HMO.

If you enroll in an HMO, expect a copay—the set amount you pay for a covered medical service—on every non-preventive medical visit. Got the flu and need to see the doc? You’ll pay a copay. Need to go in for your annual physical? No copay necessary.

And don’t forget, if you see a doctor outside of your network, get ready to pony up 100% of the cost. Always prepare to see an in-network provider and know that you won’t have a ton of wiggle room if you need to see a specialist. An appointment with a specialist will require a referral from your PCP.

6. Do PPOs have a copay? Maybe yes. Maybe no.

It’s everyone’s favorite answer—it depends! There are non-copay PPO plans and copay PPO plans. Check with your employer or health insurance provider to see which one you’ve got.

7. HMOs and PPOs could be HDHPs.

Let’s try that again in English! While PPOs have historically been employers’ go-to health insurance plans, high deductible health plans (HDHPs) have been picking up steam in recent years as a way to lower health costs for employees. In 2020, a plan qualifies as an HDHP if it has a minimum annual deductible of $1,400 for single coverage or $2,800 for family coverage.

If you’re healthy and don’t require much medical attention, an HDHP could mean a lower monthly premium than a PPO. While it’s possible for an HMO to also be an HDHP, it’s less likely since one of the key perks of an HMO is a low or no annual deductible.

If you have an HDHP, then you get the added bonus of enrolling in a health savings account (HSA) where you can add and take out money tax-free to use for a huge range of qualified medical expenses.

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HMO vs. PPO: Which Is Right for You?

The main differences between an HMO and a PPO come down to:

  • Cost
  • Size of plan network
  • Access to specialists
  • Coverage for out-of-network services

If you’re in good health with no special medical needs on the horizon, check out an HMO. If you have ongoing health care needs or just want to have greater flexibility when it comes to your providers, a PPO could be the right choice.

Figuring out what type of health care plan is best for you can get confusing, so don’t go it alone! Our friends at Health Trust Financial are experts in helping you pick the best health insurance plan for you and your family—they’ve been serving Ramsey fans for over 20 years! They’ll connect you with an independent insurance agent who'll guide you through the process of choosing coverage. With an expert on your side, you can save money and stay on target to hit your money and health goals faster. 


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