Preferred Provider Organization (PPO)

The PPO is the plan in the middle. Like an HMO, it's focused first on prevention. It costs more, as a rule, than an HMO plan - although it may cost less than a traditional FFS (fee-for-service) or POS (point-of-service) plan.

The premium for a PPO is generally higher than that of an HMO. The copayments for in-network providers - doctors, hospitals, and pharmacies - may be the same, or they may vary. The big advantage to having a PPO is that it gives you more choice. Most PPOs allow you to see any healthcare provider you want, although you'll be responsible for more of the cost if you go out of network. You don't have to choose a primary care physician (PCP) - you can make your own decisions about whether you need specialized care and you can get it without a referral.

With a PPO, you accept more responsibility for your own care. In exchange for being able to decide for yourself, you also need to find out for yourself whether the healthcare providers you use are in-network. If they're not, you'll pay more, because those providers haven't negotiated the group discounts of in-network providers.

Your insurance company can tell you the best way to confirm a healthcare provider's network status. Many insurance companies nowadays have online directories that are much easier to keep up-to-date than the old paper directories, so you can locate in-network providers with just a few mouse clicks.

And it's not just about what you spend. With a PPO, you also have greater responsibility for knowing what kind and how much care you need. Of course, your primary doctor - the one you see for annual checkups or when you're coming down with something - still monitors your "big picture," but he or she is less likely to tell you when you need to see a specialist. You need to pay attention to your own health, not expect your doctor to take care of everything for you.

So a PPO comes with somewhat higher costs and more responsibility attached, but it also allows significantly more freedom to choose your own healthcare. With a PPO, your primary doctor becomes more like a partner in maintaining your good health.

Some healthcare plans - often connected to PPOs - have very high deductibles and much lower out-of-pocket costs. These plans, called High Deductible Health Plans, or HDHPs, can be linked to healthcare spending or savings accounts. If you have an HDHP, you can make deposits to a government-approved account by payroll deduction before taxes come out of your paycheck, reducing your taxable income. The money in your spending or savings account is then available to pay your medical expenses while you work toward meeting your deductible.

Why you may want a traditional PPO plan

The traditional PPO plan is a good choice for people willing to have somewhat larger deductions from their paychecks in exchange for lower out-of-pocket costs.

Your deductible is lower. With a traditional PPO plan, the deductible is usually lower than a traditional insurance plan or a PPO with a spending account.
The out-of-pocket limit gives you peace of mind. Every PPO plan limits the amount of money you'll spend within the plan year. If you reach this limit, called the "out-of-pocket maximum," the plan pays 100 percent of additional covered expenses for the remainder of your plan year. You continue to pay copayments.
You can choose any provider. With a PPO plan, you decide whether you want to use in-network doctors. If you "step outside the network," your copayment, deductible, and coinsurance costs will be higher - sometimes significantly higher. But you'll have access to the information you need to choose what's best for you.

Why you may prefer an HDHP over a traditional PPO

The HDHP is a good choice for people who want a "safety net" for medical emergencies, but who really don't go see a doctor that often.

Your premium is lower. The higher your deductible, the less you pay just for coverage.
You still have the reassurance of an out-of-pocket limit. After you meet your deductible, your plan covers 100 percent of in-network expenses. You won't even have copayments for the rest of your plan year, as long as you see in-network providers.
Deposits to your healthcare spending accounts are pre-tax deductions. While you save to cover expenses that come up before you meet your deductible, you also save on taxes.

PPO out-of-pocket costs

With all PPO plans, your out-of-pocket costs may include:

Copayment - A fixed fee you pay when you see a doctor, have a prescription filled, or are admitted to the hospital. Copayments are generally lower for services from primary care physicians than specialists.
Deductible - The amount you pay toward certain medical expenses before your plan starts paying a share of the costs. PPO plans generally have separate deductibles and out-of-pocket limits for in-network and out-of-network providers.
Coinsurance - The percentage of costs you pay after you've met the deductible. The plan always pays a higher percentage when you use in-network providers.

Compare Health Plans

A more in-depth look at how HMOs, PPOs, and High Deductible Health Plans compare to each other.

Watch Healthcare Video: What are PPOs and HMOs?