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What Is a PPO?

Last updated March 16th, 2020

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When comparing insurance plans, there’s a good chance you’ve come across the term PPO. 

What is a PPO? It stands for preferred provider organization, and it’s a type of health care plan. Here’s your guide to them.

How Does a PPO Work?

In a preferred provider organization, the health plan has contracts with various doctors and specialists.1  As in-network providers, they offer a discounted rate to the health plan. As a result, you can also access those services for a discounted price.

You choose your doctors from your PPO plan’s list of providers. Also, you don’t need a referral to see a specialist, reducing your wait time to see someone. As long as the doctors, hospitals,  and other providers are in-network, you have lower costs.

PPOs do not restrict you to in-network healthcare providers. You can go out of network, but you’ll pay a higher cost to do so. Many health plans have different co-payments, deductibles, and out-of-pocket maximums for out-of-network providers.

In general, if you can afford a little more flexibility, it may make sense to consider a PPO.

They often offer more coverage options than other types of plans. For example, you may have access to a wider variety of alternative therapies with a PPO, such as acupuncture or massage therapy, than with a Health Maintenance Organization.

Pros

  • Flexibility to go out of network if you can pay
  • Generally, a large provider network in multiple states
  • You can usually see an in-network specialist without a referral
  • Often includes coverage not seen with other types of plans 

Cons

  • May have higher premiums than other types of plans
  • Out-of-pocket expenses may be higher if you go outside the plan network

When Should You Avoid a PPO?

If you are looking for the cheapest health insurance, it may make sense to avoid a PPO. In general, a PPO is the most expensive type of plan. It’s the least restrictive, but that comes with a price.

For those who don’t need coverage for alternative therapies and probably won’t go outside a defined network, it’s possible to get by with another type of plan. Additionally, if you can’t afford a PPO, a less expensive option may be your only choice.

if you qualify for a premium tax credit to help pay for insurance on the Affordable Care Act (ACA) health insurance marketplace, you may be able to get a PPO at an affordable cost. If your employer’s health insurance costs more than 9.78% of your income, you may qualify to use the ACA exchange and find a lower price, due to the premium tax credit.2

Watch Out For Out-of-Network Bills

One of the most significant issues to watch with a PPO, though, is whether a service provider is in network or not. It may be straightforward when seeing your regular doctor, but if you go to a hospital, a doctor providing separate services may not be in-network — and that could cost you.

Say you get surgery at an in-network hospital. Your surgeon is in-network, but later, you learn your anesthesiologist isn’t. So your insurance won’t cover the $5,000 bill for the anesthesiologist, and you’re on the hook instead.

According to a Stanford University study, out-of-network bills resulting from inpatient admissions to in-network hospitals grew significantly between 2010 and 2016.3 The proportion of in-network patients with out-of-network bills grew to 42% from 26.3%. 

Carefully read your plan benefits, so you understand what’s available. Every plan is a little different, so you need to make sure you know what to expect.

Other Health Plan Options

In addition to PPOs, there are other plan types to consider. Here are some options.

HMO

A health management organization (HMO) focuses on in-network care. You may pay lower premiums, but the insurer will generally not cover anything if you use a doctor outside their network.4 Depending on the plan, your primary care physician may need to provide a referral to see a specialist — even if the specialist is in network.

You may have fewer therapy options and less-comprehensive coverage than with a PPO. You have to decide if the lower premiums are worth the restrictions.

EPO

An exclusive provider organization doesn’t require you to choose a primary care physician like a PPO. Still, you are restricted to in-network providers for everything else.5 You won’t be able to go outside the network and have cost-sharing with your EPO. However, EPOs can be relatively low-cost when compared to PPOs.

POS

A point-of-service plan is a hybrid of a PPO and an HMO. With a POS plan, you need a primary care provider.6 However, your policy will pay for some cost-sharing allowances for out-of-network care. However, if the primary care provider makes a referral to an out-of-network provider, a POS might cover the cost when a PPO may not.

Other Health Plans

For those who qualify, a catastrophic plan on the health insurance marketplace may save money and serve as an alternative to a PPO. Additionally, there are healthcare ministries that offer access to cost-sharing. But these types of arrangements aren’t insurance and aren’t regulated the same way.7

Bottom Line

One of the most common types of insurance plans is a PPO. While they are widely available through employers and on the health insurance marketplace, it’s important to shop around. Carefully consider your own needs and budget. You may reduce premium costs by increasing your deductible but make sure you can handle the higher out-of-pocket expenses in those cases.

Compare coverage and check to see if your preferred providers are in the network before committing to a plan. If you have a choice, it’s best to choose a plan that meets your needs without breaking the bank.

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Article Sources
  1. U.S. Government Website for the Health Insurance Marketplace. “Preferred provider organization (PPO).” healthcare.gov (accessed February 14, 2020).

  2. U.S. Government Website for the Health Insurance Marketplace. “If you’d like to change to a Marketplace plan.” healthcare.gov (accessed February 14, 2020).

  3. Sun, Eric C.,  Michelle M. Mello, Jasmine Moshfegh, and Laurence C. Baker. “Assessment of out-of-network billing for privately insured patients receiving care in in-network hospitals.” JAMA Internal Medicine., August 12, 2019 (accessed February 14, 2020).

  4. U.S. Government Website for the Health Insurance Marketplace. “Health maintenance organization (HMO).” healthcare.gov (accessed February 14, 2020).

  5. U.S. Government Website for the Health Insurance Marketplace. “Exclusive provider organization (EPO).” healthcare.gov (accessed February 14, 2020).

  6. U.S. Government Website for the Health Insurance Marketplace. “Point of Service (POS) plans.” HealthCare.gov (accessed February 14, 2020).

  7. Armour, Stephanie and Anna Wilde Mathews. “As sharing health-care costs take off, states warn: it isn’t insurance.” The Wall Street Journal, June 10, 2019 (accessed February 14, 2020).