What Is a Preferred Provider Organization (PPO)?

What Is a Preferred Provider Organization (PPO)?

Let me explain what a Preferred Provider Organization, or PPO, really is. It's a health insurance plan designed for individuals and families, built around networks of contracted healthcare providers like doctors, hospitals, and other professionals. These preferred providers deliver services to you, the policyholder, at reduced rates. You'll get the best benefits when you stick to in-network professionals, but you also have coverage if you go out-of-network.

Key Takeaways

A PPO is a managed-care health insurance plan. The medical and healthcare providers in it are called preferred providers. You should know that costs with PPOs include higher premiums, copays, and deductibles. When deciding between a PPO and an HMO, you're basically weighing your need for more access to doctors and services against the plan's cost. PPOs offer more comprehensive coverage and a wider range of providers and services than HMOs.

How Preferred Provider Organizations (PPOs) Work

A PPO operates as a managed-care network of medical professionals and facilities, including primary and specialty physicians, hospitals, and others, who contract with insurance providers to serve you if you're subscribed to the plan. These plans negotiate fees and schedules with healthcare professionals and facilities, resulting in rates lower than usual. In return for these reduced rates, insurers pay the PPO a fee to access the provider network.

As a participant, you're free to use any provider in the network. You're encouraged but not required to pick a primary care physician, and you don't need referrals for specialists. You can go out-of-network, but it usually costs more. Keep in mind that PPOs can be sponsored by insurance companies, employers, or other organizations.

The Costs of a PPO Plan

There are several costs tied to PPOs, and premiums are generally higher than other insurance types because they're more expensive to administer and manage. You'll handle copayments directly to the provider at each visit, and there are deductibles you must meet before the plan fully covers claims.

You can visit out-of-network facilities, but at a higher cost, based on a reasonable and customary fee schedule. If providers charge more than that, coverage might not apply, or you'll pay the excess. The flexibility of PPOs comes with higher costs, but they offer more options, with large networks across cities and states, which is valuable in urgent situations.

While PPOs and HMOs dominate the market, other options exist like Exclusive Provider Organizations (EPOs), where coverage is only for in-network providers except emergencies, and Point of Service (POS) plans, which have lower fees for network providers but require referrals for out-of-network specialists.

Preferred Provider Organization (PPO) vs. Health Maintenance Organization (HMO)

Unlike PPOs, HMO plans require you to get services from assigned network providers, starting with a primary care physician (PCP) who handles all health issues and provides referrals to specialists.

PPO plans charge higher premiums for their convenience, accessibility, and freedom, including a wider choice of hospitals and doctors. Plans with low out-of-pocket expenses have higher premiums because the insurer covers more. Lower-premium plans mean higher costs for you. PPOs provide more comprehensive coverage, often including services excluded by other plans.

Historically, PPOs have been preferred in employer groups, but now participants seek more options, so employers offer HMOs too. HMOs are cheaper but restrict services and freedoms.

How Do PPO Deductibles Work?

A deductible is the amount you pay out-of-pocket for medical services each year before insurance starts covering. PPO plans might have two deductibles: one for in-network providers and a larger one for out-of-network, to encourage you to stay in-network.

What Are Disadvantages of PPO Plans?

PPO plans are more expensive than other managed-care options, with higher monthly premiums and out-of-pocket costs like deductibles. You'll often deal with coinsurance and copays, and these can differ for in-network and out-of-network services. This is the price for flexibility without referrals. Some people find it burdensome to manage their own care without a primary doctor.

What Is the Difference Between a PPO and a POS?

The key difference between PPO and POS plans is flexibility. Both cover in- and out-of-network, but POS requires a primary care physician and referrals for specialists, while PPOs don't. PPOs are usually more expensive, with higher premiums and deductibles.

The Bottom Line

A PPO is a managed-care health insurance plan where you can use any in-network provider without needing a primary care physician or referrals for specialists. These plans are more comprehensive with wider provider options than HMOs, but they come with higher premiums, copays, and deductibles. Choosing between PPO and HMO means balancing access against cost.