What is a Preferred Provider Organization (PPO)?
A preferred provider organization (PPO) is a healthcare plan that provides discounted coverage within a network of healthcare providers for subscribers.
A preferred provider organization (PPO) is a type of health-insurance plan where medical providers agree to provide care at reduced rates to subscribers. PPOs typically offer you more freedom to see any type of doctor, without having to get a referral from a primary care physician. This flexibility comes at a cost, as PPO plans tend to be more expensive than some other plans, especially when you factor in deductibles (the amount that must be paid out-of-pocket before insurance will pay for you) and copays (the amount you have to pay out-of-pocket for each visit).
Let’s say Steve starts a new job where his employer offers a PPO plan to its employees. Steve signs up and begins to pay his monthly premium. The premium is a little higher than some of the other health plans his employer was offering, but he decides it’s worth it for the increased flexibility of the plan. When Steve goes in for his annual checkup, he pays a copay for a visit. Also, he’ll have a deductible he’ll have to meet each year before insurance will begin to cover all medical expenses.
A PPO is like going to a party with a cover charge…
You have to pay to get in the door, but once you’re in, you can go anywhere in the party and get the food and drinks at a discounted rate.
The purpose of a PPO is to provide coverage to its subscribers for the medical care they receive. The structure places more of an emphasis on providing flexibility to subscribers than it does on delivering the most affordable healthcare.
To help reduce costs, PPOs have a network of providers their subscribers are encouraged to use. But, those who receive health care services outside of the network can still be covered.
Under a PPO, the health plan provider contracts with medical providers to create a healthcare network. Under this contract, the medical providers bill the PPO and their subscribers at a lower rate than they would charge someone with whom they have not contracted.
After signing up for a PPO (usually through an employer), a subscriber has access to a network of healthcare providers. They’re free to see any doctor in the network.
One of the benefits of a PPO plan is that when a subscriber needs to see a specialist, they can make an appointment directly with that doctor without first getting a referral from a primary care physician. PPO subscribers will usually have to pay a small copay for each visit. Most PPO plans also have an annual deductible. The deductible is the amount a subscriber will have to pay out-of-pocket each year before insurance will fully cover their healthcare.
PPO subscribers are usually able to get some coverage for out-of-network care as well. In those situations, the PPO provider would usually cover some of the costs, but the subscriber would be responsible for paying more out of pocket costs than they normally would if they’d stayed in-network. For these types of visits, there is a “usual, customary, and reasonable” fee schedule to determine how much of the claim the insurer will cover.
Not all healthcare plans allow their subscribers to receive coverage for visits to out-of-network providers. This flexibility is one of the reasons that PPOs are so popular, but also one of the reasons they are more expensive for subscribers than some other plans.
A PPO is one option of healthcare plans on the market, but it is not the only option. The different types of plans vary when it comes to their benefits and their prices, so people may prefer one type of plan based on their lifestyle and budget.
A point of service (POS) health plan is similar to a PPO in that it prioritizes flexibility and allows subscribers to see doctors outside the network.
Like a PPO, a POS has a network of providers that subscribers can visit and ensure their visits are covered. Unlike a PPO, however, POS subscribers must have a primary care physician. Anytime they need to see a specialist, the subscriber must first visit their primary doctor and get a referral to see a specialist.
POS subscribers can see out-of-network doctors, but just like with in-network care, they aren’t quite as flexible as PPO plans. That’s because with out-of-network care, just like with in-network care, many POS plans still require you to get a referral from your primary care physician. This out-of-network care will also cost you more out-of-pocket than if you were to visit a doctor that is in your network.
POS plans offer some flexibility, but not as much as PPO plans. This is reflected in the cost, as POS plans tend to have more affordable monthly premiums than PPO plans.
A health maintenance organization (HMO) is a type of health plan that offers more affordable health coverage to its subscribers by requiring subscribers to see a medical provider that is in the HMO’s network.
Unlike both the PPO and POS health plans, subscribers can only see doctors within the network to have their care covered. The only exceptions would be an emergency room or urgent room care visit.
Under an HMO, subscribers are required to establish care with a primary care provider within the HMO network. Any time they need to see a doctor, they have to visit their primary doctor first. If they need to see a specialist, they need to get a referral from their primary doctor.
HMO plans are the most restrictive of the three types of health care plans. But they are also the most affordable. First, HMO plans usually have lower monthly or annual premiums than PPO or POS plans. HMO plans also have lower copays than the other types of plans. Finally, HMO plans come with a low deductible, and sometimes no deductible at all.
When it comes to choosing the right plan, there are two main factors to consider: cost and flexibility. Those are the identifying features that distinguish the three health plans we discussed.
In general, the more flexible the plan, the more it’s going to cost you. Between the PPO, the POS, and the HMO, the PPO is the most flexible of the three. However, it is also the most costly for subscribers. So if your top priority is flexibility and you have the means to take on the additional cost burden, a PPO may be right for you.
On the flip side, the HMO is the most restrictive of the three plans. There’s no out-of-network care, and you always have to get a referral from your primary care provider to see a specialist. The process can create a huge inconvenience for someone who finds themselves needing to see specialists regularly.
But at the same time, the HMO model also creates a lot of cost savings for subscribers. You’ll pay lower premiums, copayments, and deductibles (if there’s any deductible at all).
HMO plans are generally ideal for someone whose most significant concern when it comes to their healthcare is cost.
And POS plans fall somewhere in between the PPO and HMO plans. They’re cheaper than the PPO plans but more expensive than HMO plans. They offer more flexibility than HMO plans, but less flexibility than PPO plans.
If you’re equally concerned with both cost and flexibility and want to find a plan that offers the benefits of both, then a POS plan might be for you.
Most people get their health insurance from their employer. If that’s the case for you, then you will be limited to only those plans that your employer chooses to offer. Larger employers likely have a variety of plans, and each employee can select the one that works best for them. But with a smaller employer, you may just have the option to take or leave the one option that your employer offers to you.
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