Glossary of Human Resources Management and Employee Benefit Terms
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 in order to lower costs.
A preferred provider organization (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-payment at the time of service or pay full cost until they meet a deductible. However, the insurance company may waive the deductible for preventive care, or for in-network care. Members who go outside the network will pay a greater copay or cost share, and may pay a deductible, which can significantly increase the cost of going out of network.
As far as the benefits to members go, Preferred Provider Organization plans:
Offer substantial discounts on regularly charged rates to subscribed members
Negotiate with providers to set fee schedules
Set procedures to handle disputes between the plan and providers, and between the plan and members
Review patient records to verify that appropriate treatment is being offered to patients
Offer more flexibility to patients
Have many providers in most cities, and must provide access to specialists in every specialty
An Exclusive Provider Organization (EPO) is similar to a PPO in structure, administration, and operation. EPO’s members, however, receive no reimbursement or benefit if they visit a medical care provider outside of the preferred network, except in emergency cases.
The pros of an EPO are that it may cost less for members, and there is no need to get a referral to see a specialist, reducing time and hassle. A con for members of an EPO is that no provider outside the EPO network is covered by insurance. Therefore, an EPO can be well suited for individuals who don’t anticipate needing much medical care and want to save time and money.
HMOs and PPOs are both types of managed care (a way for insurers to help control costs), but the difference between the two is that while a PPO allows patients to choose any physician whether inside or outside of their network, HMOs restrict patients to physicians in their network.
To clarify, a PPO plan has a network of providers and pharmacies, but patients are not restricted to those physicians and pharmacies, though the cost of out-of-network care may be significantly higher. With an HMO, if a patient goes outside the network, there is no insurance coverage. The same goes for pharmacy coverage.
Another difference is that before paying for specialty care an HMO requires a patient to first see their primary care physician. If the primary care physician can’t treat the patient, the physician will refer the patient to a specialist within the network. The patient may then make an appointment with the referred provider.
PPO plans tend to charge higher premiums because they are more costly to administer and manage. Depending on the specific plan, PPOs usually charge higher premiums, and often include deductibles, coinsurance, or copays. PPOs may require a patient to file a claim for reimbursement if an out-of-network provider is used.
With an HMO plan, members will usually enjoy lower premium costs, but must use in-network providers for their services to be covered. As far as ease of filing a claim, HMO patients do not need to file them since the insurance company pays the healthcare provider directly.
The bottom line is that while an HMO can be more affordable, a PPO provides more flexibility.
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