February 22, 2025

PPO and HMO

John Dang M.D.

Insurance companies collect premium and deductibles from their members and in turn are responsible for authorizing payment for medical services rendered to their members. This can happen before the service (pre-authorizations for medications, surgeries, MRI, etc) or after the service (hospitalizations, Emergency Room visits).While there are many insurance plans being offered, they typically fall into two types: PPO and HMO.

PPO stands for Preferred Provider Organization. It's a type of health insurance plan that offers more flexibility in choosing healthcare providers compared to HMO (Health Maintenance Organization) plans. PPO insurance offers very high flexibility in choosing doctors; further, delays in care are infrequent as pre-authorizations are infrequent. Here's how PPO insurance typically works: 

PPO offers a very wide network of doctors, hospitals, imaging centers, labs from which to choose from. As there are just 5-6 insurance companies in the entire United States and most doctors and healthcare networks participate in most insurance companies, having a PPO insurance allows one to see just about any doctor in the U.S.

No insurance or doctor authorization is needed to see any doctor in any specialty for any reason. Just verify the doctor is in network, then call for appointment. After the visit, healthcare provider will directly bill patient’s insurance company.

Patients can in fact see out of network providers as well; no authorization is needed. Most insurance plans help pay for out of network provider costs, though these are typically higher than in network providers.

There are no assigned PCP’s in PPO plans. Patients can find and see any PCP, as long as that PCP is taking new patients. Multiple PCP’s are also allowed.

Compared to HMO, the advantage of PPO’s is that pre-authorizations are very infrequent. No pre-authorization necessary to see any doctor. Some plans may require pre-authorizations for certain medications, imaging, or surgical procedures.

Patients have the right to see any specialist, in network or not, with PPO insurance.

‍You may be wondering: If PPO insurance plans don’t need authorizations to see specialists, then why I am asked to reach out to my PCP to see a particular specialist?
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This has nothing to do with insurance, and more to do with the healthcare organization of that specialist. Certain organizations (for example Stanford or Sutter/PAMF), are concerned with patients seeing the wrong specialist for their condition; having a PCP go over their case ensures that patients see the right type of specialist for their condition.

PPO plans typically involve out-of-pocket costs in the forms of deductibles, copayments, and coinsurance. PPO plans usually have higher premiums but lower out-of-pocket costs compared to HMO plans.

Note: EPO is a subtype of PPO plans.

HMO stands for Health Management Organization. It's a type of health insurance plan that focuses on cost saving and limited flexibility. The key to HMO insurance is the PCP, who coordinates care for the patient through obtaining authorizations. Of note, Kaiser is a type of HMO.

Healthcare insurance companies do not involve themselves directly with authorizations and referrals for HMO plans. Instead, they rely on local third-party HMO groups. Local HMO groups in the Bay Area include PMGSJ, SCIPPA, Hills Physicians, Brown and Tolland. Stanford, Sutter also offer HMO plans.

Each patient is assigned a PCP; patients have the right to switch PCP, but must notify and get approval of the switch with their insurance. A patient can have only one PCP at a time. The PCP name is usually printed on the insurance card of the patient.

HMO plans only pay for in network participating doctors. HMO network doctors usually are more limited in numbers.

Patients can see specialists who are in network for the HMO plan; these will require pre-authorization by their PCP. Each HMO plan will have in its network every type of specialist to meet the needs of its members. If a type of specialist cannot be found in network, the plan will pay for out of network specialist visits.

Apart from seeing the PCP and labs, almost all imaging, surgical procedures, and specialists require authorization, usually done by the office of the PCP. Only when pre-authorization is submitted to and approved by the insurance can a patient then go see the specialist or do the procedure or imaging.

HMO plans typically have lower premiums compared to PPO plans. Deductibles, co-insurance, and copays still apply