Providing health insurance is a significant investment, but it can also be a major factor in attracting and retaining top talent.

The plan you choose, whether an HMO (health maintenance organization) or a PPO (preferred provider organization), can have a big impact on your employees’ healthcare experience, satisfaction, and out-of-pocket costs. It can also affect your company’s overall benefits budget. Let’s look at seven key differences between these two common health insurance plans.

1 Network Size.

HMOs operate within a limited network of healthcare providers contracted with the insurance company. This means options for doctors, hospitals, and specialists are restricted to those within a set network. PPOs, on the other hand, give you more flexibility to choose from a wider range of providers. However, staying in-network typically results in lower out-of-pocket costs.

2 Referrals.

HMOs typically require you to select a primary care physician (PCP) who acts as your main point of contact for healthcare. To see a specialist, you usually need a referral from your PCP. This ensures coordinated care and cost control. PPOs generally don’t require referrals, allowing you to consult specialists directly without prior approval.

3 Out-of-Network Coverage.

HMOs generally don’t cover out-of-network care except in emergencies. If you choose to see a provider outside the network, you’ll likely have to pay the full cost of the services yourself. PPOs do offer some coverage for out-of-network care, typically with higher deductibles, copayments, or coinsurance compared to in-network care.

4 Cost.

HMOs are often known for their lower monthly premiums and overall out-of-pocket costs compared to PPOs. This makes them a more budget-friendly option for individuals and families. However, the trade-off is less flexibility in choosing providers and the need for referrals. PPOs tend to have higher premiums but offer greater flexibility and coverage for out-of-network services.

5 Flexibility.

PPOs are generally considered more flexible than HMOs. They offer a broader network of providers, don’t require referrals for specialist visits, and provide some coverage for out-of-network care. This allows greater freedom in choosing your healthcare providers and treatment options. HMOs are less flexible, but their structured approach can streamline care and potentially reduce costs.

6 Claims.

HMOs typically handle claims directly with healthcare providers, simplifying the process. You usually won’t need to file claims yourself unless you receive out-of-network care. PPOs may require you to submit claims for out-of-network services, which can involve more paperwork and potentially longer reimbursement times.

When deciding between an HMO and a PPO for their employees, you should weigh several factors, including premiums, deductibles, and out-of-pocket maximums. If cost is a major concern, an HMO might be more attractive due to its typically lower premiums. However, you should also assess the healthcare needs and preferences of your employees. Ultimately, the decision should be based on finding a balance between affordability, employee satisfaction, and adequate healthcare coverage.

Taking the Next Step

For additional resources about healthcare plan options or if you have questions, reach out to us.