What is the primary difference between a health maintenance organization HMO and a preferred provider organization PPO )?

When you're looking for health insurance, there are usually two main types of 'managed care' plans from which to choose: an HMO or a PPO.

According to the U.S. government's health care exchange marketplace, people who are deemed able to afford health insurance but choose not to buy it may have to pay a fee called the individual Shared Responsibility Payment when they file their 2018 federal taxes. The fee is sometimes called the "penalty," "fine" or "individual mandate," according to the exchange's website.

Shared Responsibility Payment no longer applies.

Some states have their own individual health insurance mandate, requiring someone to have qualifying health coverage or pay a fee with their state taxes. If you live in a state that requires you to have health coverage and you don't have it, or an exemption, you will likely be charged a fee when you file your state taxes - but you won't owe a fee on your federal tax return.

If you don't have coverage, the fee no longer applies, and you won't need an exemption to avoid the penalty.

HMO vs. PPO

Managed-care plans try to reduce medical care costs, without sacrificing quality care. With the growing need for managed care plans, HMO and PPO plans have gained popularity over traditional fee-for-service plans, where coverage is provided regardless of provider or hospital used.

An HMO is a Health Maintenance Organization, while PPO stands for Preferred Provider Organization.

The differences, besides acronyms, are distinct. But the major differences between the two plans is the cost, size of the plan network, your ability to see specialists, and coverage for out-of-network services.

When you're choosing a plan, you should consider your total health care costs, not just the monthly premium you'll pay to an insurance company every month. The premium is important, but other amounts, sometimes lumped together as "out-of-pocket" costs, can affect your total spending on your health care, and can sometimes be more than a monthly premium.

Among the "out-of-pocket" costs to consider are the deductible, copayments and coinsurance, and if there is an "out-of-pocket" maximum to your plan.

The deductible is how much you have to spend for covered services before the insurance company pays for anything other than free preventive services, such as an annual physical.

Copayments and coinsurance are payments you make whenever you get a medical service after you've reached your deductible.

And the "out-of-pocket" maximum is the most you'll have to spend personally for covered services in a year. After reaching it, if your plan has one, the insurance company will pay 100% for covered services.

Premiums

To begin with, premiums for an HMO are usually lower than for a PPO. But the provider network will be more restrictive, and you have to coordinate medical care through a primary care physician (PCP).

According to the Kaiser Family Foundation 2018 health benefits survey, published in October 2018, the average monthly premium paid by firms of all sizes for a single person HMO was $572, and for a family, was $1,620, with annual average premiums totaling $6,869 for an individual and $19,445.

For a PPO, the average monthly premium paid by firms of all sizes was $596, and for a family, $1,694, with annual average premiums totaling $7,149 for an individual and $20,324 for a family.

Besides lower monthly premiums, HMOs typically have the lowest out-of-pocket costs. Depending on the specifics of the HMO plan offered by a particular company, you might have a low deductible or even no deductible. But, if you use a provider not part of your HMO network, be prepared to pay 100% of the cost.

Primary Care Physician

Some HMO plans require you to choose a Primary Care Physician (PCP). A PCP is usually part of a medical group or hospital system. Restricting referrals to a PCP is a way HMOs contain costs, under the idea if one provider is coordinating care, it can be more efficient because your PCP's referral assures the insurance provider that specialized care is medically necessary.

Deductible and Copay

HMOs, while often not having a deductible or having a low deductible, typically require copayment fees for non-preventive visits.

A PPO, on the other hand, allows members to see any health care provider in the insurance company's network, without a referral -- even specialists. Often, if your situation requires regular visits to specialists, this makes a PPO preferable to an HMO, because there is no PCP requirement for referrals. And there are fewer restrictions on seeing out-of-network providers.

On non-preventive medical care, like HMO plans, a PPO plan will usually have copayments. But a PPO plan will also likely have an annual deductible and higher premiums.

The main differences between an HMO plan and a PPO plan are:

PPO Plans:

• Offer more flexibility in selecting a doctor or hospital
• Often has fewer restrictions on seeing out-of-network providers
• Sometimes covers the costs of visits to out-of-network providers.
• The majority of companies that offer health insurance benefits to employees offered PPO plans -- 73% -- while only 37% offered HMOs in the 2018 survey.

HMO Plans:

• Often are more affordable, with lower monthly premiums and a low or no annual deductible
• Usually, require PCP referrals to see specialists for non-emergency needs
• Usually provide a list of network providers, including specialists -- but if you choose to visit a doctor outside of the network, it's possible there will be no coverage provided and you will have to pay the full cost for the visit.

Which Insurance Plan is Better for You?

Deciding which is better for you depends on your current or expected health needs. Paying the lowest possible monthly premium may appear right for you now, as time goes on you might want more flexibility like a lower deductible later.

Before deciding, make sure you review a list of in-network providers where you live first. You also should realistically gauge your income, check HMO availability where you live, and consider if you will need to see any specialists in the coming year.

To choose the right plan for you, consider the price and flexibility you need in a health plan. These are the differences between an HMO and a PPO.

What are the differences between HMO and PPO plans?

Choosing between an HMO or a PPO health plan doesn't have to be complicated. The main differences between the two are the size of the health care provider network, the flexibility of coverage or payment assistance for doctors in-network vs out-of-network, and the monthly payment.

The monthly payment for an HMO plan is lower than for a PPO plan with a comparable deductible and out of pocket maximum.

CareFirst's PPO plans offer a wide network of providers. In exchange for a lower monthly payment, an HMO offers a narrower network of available doctors, hospitals, and specialists. CareFirst has built its plans with patients' freedom to see the doctor of their choice in mind, and the HMO plan still covers a wider network of doctors than many other health insurance providers.

In-depth: HMOs

HMO stands for Health Maintenance Organization. A Health Maintenance Organization is a network of doctors, hospitals and other health care providers who agree to provide care at a reduced rate. To keep costs low, HMOs may require you to select a primary care physician (sometimes called a primary care provider or PCP), who can refer you to specialists when needed.

An HMO plan will only pay for care from health care providers in the HMO network, except for emergency care, which may be covered out-of-network. Lab work, such as a blood draw, or a urine test, is also limited to one laboratory provider covered by the HMO network.

HMO plans are generally less expensive than PPO plans, with lower monthly payments, making them ideal if your favorite doctors are already in the network, or if you receive most of your care close to home.

In-depth: PPOs

PPO stands for Preferred Provider Organization. Like an HMO, a Preferred Provider Organization is a network of doctors, hospitals and health care providers who agree to provide care at a certain rate. Unlike an HMO, you are not limited to providers who are in-network, though your copay or out-of-pocket cost for out-of-network visits may be higher than for in-network providers.

PPO plans typically require higher monthly payments in exchange for increased flexibility. With a PPO, you do not need to maintain a primary care physician, and can see a different doctor of your choice at any time, including specialists. This also means when you are traveling, you can receive care wherever you are.

Additionally, PPO plans offer more options for laboratory service providers. When you need lab work done, you can choose the most convenient location under a PPO network.

Things to consider when choosing between HMO and PPO:

To choose the right plan for you and your family, you may want to consider the following:

Do you need a lower monthly payment?

Compare the monthly cost of the HMO and PPO plans. If you need a lower monthly fee, consider an HMO plan.

Do you stay close to home, or do you travel a lot?

If you travel frequently and are more likely to need care while away from home, especially if you are living with a chronic condition, or enjoy high-risk hobbies such as certain sports, you may need a PPO to provide the best coverage for your needs.

If you need a lot of specialist care, say you are managing a rare or chronic condition, you may also prefer the ease of choosing specialists and seeing them right away that you get with a HMO plan.

If you mostly get care in your home city or mostly from your family physician, an HMO is more likely to provide the right coverage for you.

If you already have a doctor you like, does the plan you are considering cover visits with him or her?

While CareFirst's HMO plans have especially wide networks compared to many other HMOs, the PPO plans still offer in-network coverage for more health care providers. If you would like to keep your doctor, you can determine whether he or she is in-network under an HMO plan, a PPO plan or both.

Choosing the right health plan can give you peace of mind, knowing that your insurance plan has your health needs covered.