Helping Your Clients Understand the Differences and Advantages of Medical HMOs and PPOs


Health care is complicated. For employers, employees, and dependents. Making the right plan choice is sometimes challenging, especially when an employer replaces an existing plan with coverage from a different carrier.

You probably understand the A-B-Cs of Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and other health plans; however, your clients may not be aware of how these plans are similar and how they differ. We’ll break it down for you (and them) here.

The Differences of Group Medical HMO and PPO Plans

History of HMOs

The earliest pre-paid health plans date back to 1910; that’s when Western Clinic in Tacoma, Washington, was established to fulfill the health care needs of lumber workers in the Pacific Northwest. That was followed in the 1930s, 40s, and 50s by Ross-Loos Medical Group is Los Angeles, which offered services to the Los Angeles Department of Water & Power, Los Angeles fire and police departments, and others. However, it was the Health Maintenance Organization Act of 1973 that kicked off the large-scale development of HMOs.

What Is an HMO?

HMOs are medical insurance groups that provide health services to members for a fixed annual fee. They offer a range of services, including preventive care, delivered by a network of contracted medical professionals. These in-network HMO providers are sometimes paid on a per-member basis, no matter how many times members are seen in a month. HMO member costs are typically lower because the HMOs already have contracts in place with providers.

An HMO requires members to have a Primary Care Physician (PCP), who manages care and makes referrals when a patient needs to visit an in-network specialist. Out-of-network care may be available in some circumstances and in case of an emergency. Lab work is usually limited to in-network providers. Care services may be subject to copayments, although some preventive services have no copayments. There’s often no deductible for HMO plans. If an HMO member gets medical care from an out-of-network provider, the HMO will not cover it unless it’s an emergency.

HMO Advantages

HMOs are a popular choice for individuals and families that want to spend less on their plan premiums and out-of-pocket costs for treatment. Those who rarely visit a physician may also favor them because they offer:

  • Lower monthly premiums (than a PPO)
  • Generally lower out-of-pocket costs, including reduced Rx costs
  • Treatment in-network, with no claims to file
  • The convenience of coordinated care, often through a single facility/campus

Two disadvantages of an HMO are the requirement to find a new doctor (if a patient’s doctor is not in-network for the HMO) and limited, if any, benefits for out-of-network care except for emergencies.

What Is a PPO?

A Preferred Provider Organization (PPO) health plan is designed to offer its members greater flexibility. Premiums for a PPO are higher than HMO premiums. Care is most affordable when using a provider that is part of the PPO network, but some benefits are payable for out-of-network care. Most services are subject to a deductible and copayments, both in- and out-of-network.

PPO Advantages

PPOs are a popular choice for individuals and families that have a preference for a particular physician, medical group, specialist, or hospital that may not be available through an HMO network. PPOs also offer benefits to members when traveling, so for those with a chronic health condition, a PPO may be preferred since care is available in most places.

  • There’s no Primary Care Physician (PCP) requirement, no one to “manage” care, and members can self-refer when they want or need to see a specialist.
  • When members visit an in-network provider, out-of-pocket costs will be lower.
  • PPO plans offer more options for lab services. If there’s a need to have lab work done, PPO members can choose the most convenient location in the PPO network.

For some, the higher costs (of premiums, deductibles, and copayments) are a big disadvantage of a PPO; however, the broader provider network and the ability to see a specialist without a referral may tip the scales for a PPO.

Other Options, Too

While this blog post spotlights HMOs and PPOs, those are not the only options available in today’s health care marketplace. In some regions, there may be Exclusive Provider Organization (EPO) plan options.

Many consider an EPO a hybrid of an HMO and PPO. That’s because with an EPO, you don’t typically need a referral from a PCP to visit an in-network specialist. However, like an HMO, there are no out-of-network benefits for an EPO, except in case of emergency.

In Nevada, for groups engaged in certain industries, there may be Association Health Plan (AHP) options you will want to review with your clients. Ask us for details. (AHPs are not available in California.)

Refer to our Health Care Quick Flick series for videos on HMOs, PPOs, HDHPs, HSAs, and related topics.

Something for Everyone

Word & Brown offers a diverse roster of health plan options for your Small Group and Large Group clients. (We also offer Individual & Family Plan (IFP) options; reach out to Duncan Shader for information.)

We partner with more than 15 different carriers and administrators for Small Group in California, and more than a dozen for Large Group. In Nevada, our partner roster includes nearly 10 Medical carriers and administrators offering Small Group and Large Group coverage.

Our quoting software, WBQuote and WBQuote Lite, is the most-advanced in the Small Group marketplace. You can easily compare carriers and plans, view differences, and easily find the plan that best fits your clients’ needs. For Large Group, you can count on our team to work with you to quote, sell, enroll, service, and renew your cases.

Contact your Word & Brown representative today to learn more, or give us a call at (800) 869-6989.


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