A preferred provider organization (PPO) is a type of health plan that creates a network of participating medical providers by contracting with doctors and hospitals to reduce costs.

What is a Preferred Provider Organization?

A PPO is a subscription-based, reduced-rate medical care arrangement between subscribing members and a contracted network of preferred medical providers. PPO plan members either pay a co-pay at the time of service or pay the full cost until a deductible is met. However, the insurance company may waive the deductible for preventive care or in-network care. Members who go out of network will have to pay higher co-pays or cost sharing, and may have to pay a deductible, which can significantly increase the cost of going out of network.

As far as the benefits that members get, PPO plans:

• Offer subscribed members a substantial discount on the regular rates charged
• Negotiate with providers to determine fee schedules
• Establish procedures for resolving disputes between the plan and providers, and between the plan and members
• Review patient records to ensure patients are receiving appropriate treatment
• Provide patients with greater flexibility
• Most cities should have multiple providers, and each should offer access to experts in a specialization

What is an Exclusive Provider Organization?

An exclusive provider organization (EPO) is similar to a PPO in structure, administration, and operation. However, except in emergency cases, EPO members do not receive any reimbursement or benefits when visiting a medical service provider outside the preferred network.

The advantages of an EPO are that it may cost less to members, and there is no need to get a referral to see a specialist, which reduces time and hassle. A disadvantage for EPO members is that any providers outside the EPO network are not covered by insurance. Therefore, an EPO may be suitable for individuals who do not require a lot of medical care and who want to save time and money.

What is the difference between an HMO and a PPO health plan?

Health maintenance organization (HMO) and PPO plans are both types of managed care (a way for insurers to help control costs), but the difference between the two is that while PPOs allow patients to choose any doctor, inside or outside their network, HMOs limit patients to physicians in their network.

To clarify, a PPO plan has a network of providers and pharmacies, but patients are not limited to those physicians and pharmacies, although out-of-network care can cost significantly more. With an HMO, if a patient goes out of network, there is no insurance coverage. The same goes for pharmacy coverage.

Another difference is that HMOs require the patient to first visit their primary care physician before paying for specialty care. If the primary care physician cannot treat the patient, the physician will refer the patient to a specialist within the network. The patient can then make an appointment with the referred provider.

PPO plans charge higher premiums because they are more costly to operate and manage. Depending on the specific plan, PPOs typically charge higher premiums, and often include deductibles, coinsurance, or co-pays. A PPO may require the patient to file a claim for reimbursement if an out-of-network provider is used.

With an HMO plan, members will typically enjoy lower premium costs, but they will have to use in-network providers to get their services covered. As far as the ease of filing claims goes, HMO patients do not need to file them because the insurance company pays the healthcare provider directly.

The bottom line is that while an HMO may be more affordable, a PPO offers more flexibility.