HMO Health Insurance

Q: What is the difference between an HMO and PPO health insurance plan?  

A Health Maintenance Organization (HMO) is an organization that delivers comprehensive health care to an enrolled population at a predetermined price. Members pay a fixed fee, generally on a monthly basis, which is reimbursed directly to the HMO in exchange for health care services. This payment structure is called capitation. The HMO contracts with a group of health care providers to provide their services and requires that membersí health care services are rendered by their participating providers in order to be a covered expense under the Plan. There are several HMO models. Members must choose a Primary Care Physician (PCP). Generally, members are restricted to care within the HMO; but can obtain a referral from their PCP for specialty care from a specialist or hospital that may not be a participating provider. Unlike the HMO, a Preferred Provider Organization (PPO) is an organization that facilitates the delivery of cost-effective health care by arranging contracts between a select group of health care providers (hospitals, physicians) and purchasers of health care (employers, union trust funds), but is itself neither a provider nor a purchaser. Typically, provider fees are negotiated in advance and providers offer discounts in return for rapid reimbursement and market share. Payment is on a fee-for-service basis rather than on a capitated one like the HMO. There are generally penalties incurred by employees who go outside of a Preferred Provider network in the form of larger copays and deductibles. PPOs offer a greater flexibility in benefit design and more freedom of choice for employees with respect to the providers they use. Therefore, PPOs tend to be a higher cost medical option than an HMO.

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