HMO vs PPO: Choosing the Right Health Care Coverage

Whether contemplating an HMO vs PPO or a HDHP vs a lower deductible plan, there’s no shortage of "insurance speak" you’ll need to learn when seeking out the best healthcare plan.

Most medical insurers have adapted a "contained network" concept in an attempt to corral skyrocketing costs. What this probably means to you is less choices as to who your "providers" are. Insurance companies negotiate set prices for healthcare with these providers, and you are afforded lower prices with them. If you seek care out of the network, you will pay more.

HMO: Health Maintenance Organization. Usually the most inclusive of the bunch. That means you must use the HMO's doctors and services (except in emergencies) and live in a specific geographic service area where the service center(s) are located. Kaiser® is the largest and best known HMO.

PPO: Preferred Provider Organization. Contracts with doctors, hospitals, and specialists that form a network of care. Care is more affordable using the network, but going outside the network is allowed and covered, but at more cost to you. Traditionally, this option has afforded the enrollee the most choices. Unfortunately, PPOs are becoming more like HMOs -- networks are becoming more and more exclusive in an effort to control costs.

EPO: Exclusive Provider Organization. Works much like an HMO: You must use the doctors, hospitals, and specialists in the EPO network, except in an emergency.

HDHP: High Deductible Health Plan. The type of health plan you must have in order to qualify to make a tax deductible Health Savings Account contribution and enjoy tax free earnings.

More insurance speak

To fully understand your choices, you will need to be able to interpret even more "health insurance speak."

The premium is the monthly amount paid to maintain your health insurance. Your employer may pay all or part of it, and the remainder is paid by you via a payroll deduction, in most cases.

The deductible, which does not include your part of the monthly premium, is the amount you have to pay out-of-pocket for medical care before your health insurance kicks in. Some services, like your yearly wellness visit to your doctor, may have no deductible, co-pay or coinsurance. Others services may have no deductible but you still have a co-pay or coinsurance. ("Having no deductible," often phrased as "not counting toward the deductible," mean the same thing.)

Coinsurance is the percentage you pay for a covered healthcare service once the deductible is met (or if the service has no deductible). The higher the tier plan you choose, the more expensive the premium but the lower the coinsurance and deductible. Rather than a percentage, some plans charge a fixed amount for covered healthcare services which is known as a copayment.

The out-of-pocket maximum is the maximum amount of out of pocket medical costs, not including premiums, that you pay before the insurance company starts picking up the tab. Out of pocket expenses include copayments, coinsurance, and your deductible.

HMO vs PPO

Yes, those abbreviations can be maddening. Hopefully you know a bit more about the healthcare choices available to you. Be sure and bookmark this page, because by the time open enrollment comes around next year, you will have probably forgotten the whole HMO vs PPO thing and have to learn it all over again.