PPOs vs. HMOs

Most people in the U.S. are enrolled in some form of "managed care" health insurance—either a preferred provider organization (34 percent), health maintenance organization (31 percent), or a point-of-service (9 percent) plan, which is a hybrid of the other two.

Both PPOs and HMOs contract with doctors, hospitals, and other health-care providers to create a network of participating providers. But there are important differences, too, and understanding them is key to choosing a plan that's right for you.

Preferred Provider Organizations

You'll pay more out-of-pocket for a PPO compared with an HMO, especially if you see out-of-network doctors. But PPOs tend to have larger networks and they make it easier to get out-of-network care.

Untily recently, PPOs hadn't focused on measuring and improving quality of care as much as HMOs had. They score lower on average than HMOs in the NCQA rankings of health plans we report this year, in part because they currently collect data differently.

Here are the major features of PPOs:

• For in-network, or "preferred," doctors, you typically pay a $15 to $30 co-payment.
• You have to pay an annual deductible, generally between $250 and $1,500, before insurance kicks in.
• You can see specialists, including those outside the network, without a referral from a primary-care doctor.
• You can get care outside the network but will pay more, generally 20 to 40 percent of the bill. Moreover, you will likely also have to pay "co-insurance," or the difference between what the doctor charges and the PPO deems "reasonable and customary." For example, say a doctor's bill is $100 and the PPO pays 80 percent but says the reasonable charge for the service is $75. In that case, the insurer will pay $60 (80 percent of $75) and you will pay $15 (20 percent of $75) plus the $25 difference between the doctor's bill and the reasonable charge, for a total of $40.

You might want to choose a PPO if you:

• Want ready access to specialists and out-of-network doctors and hospitals.
• Don't mind paying more for care than you might if enrolled in an HMO in exchange for greater freedom.
• Don't mind the hassle of filing claims and figuring out your bills.

Health Maintenance Organizations

With an HMO you will have more limited options for out-of-network care than with a PPO. But you will generally pay less out-of-pocket, have less paper work, and have more coordination of your care that's overseen by your primary-care doctor. HMOs also emphasize measuring and improving quality of care.

Here are the major features of HMOs:

• Co-payments are generally $10 to $20.
• Deductibles are generally lower than in a PPO, between $100 and $500.
• You usually won't have to pay co-insurance.
• You need a referral from your primary-care doctor to see a specialist. But these are more readily available now than in the past.
• You can see providers or go to hospitals outside of the HMO's network but you'll usually have to pay the full cost.

You might want to choose an HMO if you:

• Are comfortable with some restrictions on your choice of doctors and hospitals.
• Don't have out-of-network doctors you want to keep.
• Like the idea of a primary-care doctor coordinating your care.

Point-of-Service Plans

You can view POS plans as a compromise option. They operate like HMOs in that you choose a primary-care doctor from the plan's network, have low co-payments and no deductibles or co-insurance costs for in-network providers, and you must get a referral to see in-network specialists. But as with PPOs, you can also see out-of-network providers, though you will need a referral first and will have to pay a deductible and a percentage of the cost. Many HMOs offer a POS option.

You might want to choose a POS plan if you:

• Like the idea of an HMO but want more flexibility to see out of network providers.
• Like an HMO in your area but have one or two doctors you want to see that are not in its network.
• Don't mind paying more to see out-of-network doctors.
• Don't mind the paperwork hassles if you go out of network.