A Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO) are two types of health insurance plans. A defining distinction between these two plans is that an HMO only provides a beneficiary with access to certain doctors and hospitals within its network, while a PPO offers more flexibility in an enrollee’s choice of a doctor or hospital.
The Medicare Advantage program, also known as Medicare Part C, originated with the Tax Equity and Fiscal Responsibility Act of 1982, which authorized Medicare to contract with private health plans.1
Most Medicare Advantage Plans offer coverage for things Original Medicare doesn’t cover (e.g. vision, hearing, or dental services). Enrollees can choose plans with more or less benefits, tailoring their coverage. Medicare Advantage also benefits chronically-ill enrollees and can provide customized benefits to treat specific conditions.
The major differences between an HMO and PPO plan are their respective network sizes, the restrictions or lack thereof for an enrollee’s specialist visits, and the out-of-network coverage. An HMO network is made up of providers that have agreed to lower their rates for plan members and also meet quality standards. Most HMOs require an enrollee to select a designated primary care physician (PCP) to be the primary point of contact for medical care. The PCP determines what treatments a beneficiary needs, and only refers them to a specialist if they determine it medically necessary. Without a PCP referral, costs for specialists will not be covered for an HMO enrollee. An enrollee is only covered if they see an in-network provider and there are few opportunities to see a non-network provider (e.g. for emergency care). HMO plans also have more restrictions for coverage (e.g. allowing only a certain number of visits, tests or treatments).2
In contrast to HMOs, PPOs tend not to require selection of a PCP, and usually allow an enrollee to see a specialist without a referral, and still have these costs covered. PPO plans still feature a network of providers, but there are fewer restrictions on non-network providers. PPO insurance also extends coverage for non-network providers, although it may be more expensive for a beneficiary to elect out-of-network care. The additional coverage and flexibility from a PPO will generally cost an enrollee more than an HMO plan. HMO premiums will typically be lower than PPO premiums and HMO deductibles tend to be lower than PPO deductibles.2
In 2021, more than 26 million people are enrolled in a Medicare Advantage plan. Over 60% of all Medicare Advantage plan members choose an HMO plan for coverage, and over one-fifth choose a PPO plan for coverage.3,4
HMOs are generally responsible for 100% of costs incurred for out-of-network care. However, HMO point of service plans allow out-of-network care for certain services.4
McGuire TG, Newhouse JP, Sinaiko AD. An economic history of Medicare part C [published correction appears in Milbank Q. 2013 Mar;91(1):210]. Milbank Q. 2011;89(2):289-332. doi:10.1111/j.1468-0009.2011.00629.x
PPO vs. HMO Insurance: What's the Difference? | Medical Mutual. Medmutual.com. https://www.medmutual.com/For-Individuals-and-Families/Health-Insurance-Education/Compare-Health-Insurance-Plans/HMO-vs-PPO-Insurance.aspx.
Humana Gold Plus Medicare Advantage HMO – Humana. Humana.com. https://www.humana.com/medicare/medicare-advantage-plans/humana-gold-plus-hmo?kc=0300013204.
Freed M, Biniek J, Damico A, Neuman T. Medicare Advantage In 2021: Premiums, Cost Sharing, Out-Of-Pocket Limits And Supplemental Benefits. Kaiser Family Foundation; 2021. https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2021-premiums-cost-sharing-out-of-pocket-limits-and-supplemental-benefits/.