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HMO vs PPO Explained

Health insurance is famous for acronyms and unfamiliar terms that can be confusing to the average consumer. When individual and family health insurance plans became “Obamacare” plans under the law known as the Affordable Care Act (or ACA), a whole new layer of terminology was introduced.

That said, most people who have health insurance are probably familiar with the terms “HMO” and “PPO.” But do you really understand what they mean? Can you explain the difference between an HMO plan and a PPO plan under Obamacare today?

If not, you’re probably not alone, but this article may help.

HMO health insurance plans explained

HMO stands for “Health Maintenance Organization.” HMO-style health insurance plans have been around since long before Obamacare. They were first introduced as a way to help rein in the cost of health care. Here’s a short video explaining what an HMO health insurance plan is.

Explaining HMO basics

Under an HMO-style health insurance plan, you typically have to select a primary care physician, generally a family doctor, internal medicine doctor, or (in the case of kids) a pediatrician. This primary care physician is your first point of contact whenever you need medical care or prescription drugs. He or she will see you for your annual checkup and when you’re feeling sick. Your primary care physician will typically write out prescriptions for you too. If you get hurt or sick and need to see a specialist, he or she will typically refer you to a specialist (for example, an ENT doctor or an orthopedic surgeon) for care.

Most HMO-style plans keep you within a fairly tight network of providers. Your primary care physician should be a part of the insurance company’s HMO network and any referrals that they make to other specialists will also generally be within the HMO network.

Some of the first HMO health insurance plans were run by insurance companies that also ran their own hospital systems. When you belong to an HMO plan of this kind, you’re pretty much always going to see doctors and specialists within the same hospital or clinic system.

Other HMO plans are run by insurance companies that don’t operate hospital systems, but they’ve put together an HMO-style system within their network of medical providers and hospitals.

The popularity of HMOs in the Obamacare era

Starting in the 1990s HMOs fell out of favor for a while. PPO-style health insurance plans started to become more popular among individuals and families that purchased coverage on their own. This trend continued well into the early 2000s.

In fact, though they had never disappeared entirely, it was the advent of Obamacare that brought HMOs back into popularity for a lot of mainstream consumers. With the cost control rules of Obamacare, HMO-style plans began to look more promising to insurance companies, and since HMO-style plans may cost a bit less than other kinds of plans, more and more consumers began to sign up for HMO plans again.

In fact, eHealth, Inc. has reported on the relative popularity of HMO plans over the past several years, since major provisions of the Obamacare law came into effect in 2014. Here’s what they’ve found:

  • In 2013, HMO-style plans accounted for less than 9% of all individual and family health insurance plans selected by eHealth shoppers*
  • In 2016, HMO-style plans accounted for 40% of all individual and family Obamacare health insurance plans selected by eHealth shoppers**

PPO health insurance plans explained

PPO stands for “Preferred Provider Organization.” PPO-style plans have been around for a while. Since perhaps the late 1990s or early 2000s they have been the most popular form of health insurance plan in the individual and family health insurance market. They continue to be popular under Obamacare, though their popularity seems to be slipping recently. Here’s a short video explaining what a PPO health insurance plan entails.

Explaining PPO basics

Unlike HMO-style plans, PPO plans typically do not require you to select a primary care physician or get referrals to specialists through a single doctor. With PPO plans, your benefits will be most robust when you stick with doctors and other medical providers within the health insurance company’s network of “preferred providers.”  But within that network it’s up to you to decide which doctors you visit and when.

PPO plans provide health insurance consumers with more freedom to direct their own health care than HMO plans typically provide. That’s why they became so popular. Over time, however, as the cost of medical care continued to rise, PPO plans (like most all health insurance plans, whatever their type) raised their monthly premiums, and shifted more costs (in the form of deductibles, copayments, etc.) to their members.

The popularity of PPO plans in the Obamacare era

While PPO plans continue to be popular today, you can see that they are less popular today than they were before major provisions of the Obamacare law came into effect in 2014. Data published by eHealth reflects this:

  • In 2013, PPO-style plans accounted for more than 77% of all individual and family health insurance plans selected by eHealth shoppers*
  • By 2016, PPO-style plans accounted for only 38% of all individual and family Obamacare health insurance plans selected by eHealth shoppers**

Other popular health insurance plan types under Obamacare

HMO and PPO plans aren’t the only kinds available to individuals and families under Obamacare. There are also POS (“Point of Service”) plans and EPO (“Exclusive Provider Organization”) plans, among others.

HMO vs PPO plans – which one is right for you?

Picking a health insurance plan is a personal decision, and there are a lot of factors to consider. For example:

  • How much can you afford in monthly premiums?
  • How much of an annual deductible could you afford if you faced serious medical issues?
  • Are there any specific doctors you want to see and do they accept the plan you’re considering?
  • Are your personal prescription drugs covered at a price you can afford?

These are just a few of the considerations that an Obamacare health insurance shopper should consider. In fact, when it comes to picking a plan that will meet your personal coverage needs and budget, these questions are probably more important than whether you want a PPO plan or an HMO plan.

That said, if having more freedom to visit the doctors of your choice is important to you – and you don’t mind spending a bit more in terms of your monthly premiums – a PPO plan might be worth considering.

Alternately, if you want to spend a bit less in monthly premiums and don’t mind getting referrals from a primary care doctor when you need to see a specialist – then an HMO plan might be a good fit.


* See eHealth’s December 2013 report, The Costs and Benefits of Individual and Family Health Insurance:
** Based on eHealth shoppers not utilizing government subsidies. Refer to eHealth’s Health Insurance Price Index Report data for the 2016 Open Enrollment Period. [Link to follow]