HMO vs. PPO: Crunching The Insurance Numbers

It’s around that time of year for open enrollment, which has me pondering the age-old debate…HMO or PPO? Each and every year I ask myself the same question. This year, I decided to really sit down and think about it. I had to crunch some numbers. So for those of you in the same boat, bear with me as I attempt to make sense of this dilemma.

To help add to this conversation, I also sought advice from a financial coach, Acquania Escarne, creator of The Purpose of Money. Together we walk through different options. 

Here’s a quick glossary of the terms we will use:

• Calendar year deductible: The amount you must pay out of pocket before your insurer pays anything
• Coinsurance: The percentage that you pay after you’ve met your deductible
• Copay: The fixed amount you pay for visits 
• Health Maintenance Organization (HMO): A network of providers and facilities that administer care to its members
• In-network: Providers that are part of your health plan
• Out of network: Providers who do not have a contract with your insurer
• Preferred Provider Organization (PPO): A network consisting of preferred providers
• Premium: The amount you pay into your insurance plan, usually on a monthly basis 
• Preventive Care: Proactive visit that is intended to prevent future illness
• Specialist office visit: Focuses on a specific area of concern

Things to Consider:

• How often do you visit the doctor in a given year?
• Do you see specialists often? In my experience, HMO requires you to visit your primary doctor who will then refer you to a specialist. With a PPO, you can see a specialist without that initial visit to your primary physician. 
• If your health needs require specialists, are they in your network?
• Do you have the funds to pay the calendar year deductible in the event that you have to visit a doctor for something other than preventive care?
• Might a health spending account be useful?
• Have your circumstances (marital, children, health) changed since the last enrollment period?

Marissa: What advice do you normally give clients when they are reviewing their health insurance options?

Acquania from The Purpose of Money: Marissa I must say you really outline a lot of the questions I pose for my clients. When it comes to monthly expenses, after housing, health insurance can be some families’ highest expense. And just to think, your employer often contributes too. 

If your goal is to save money, the simple one-stop-shop that HMOs provide is often convenient and cost-effective for most people. Plus, if you visit the doctor often, having all your doctors in one place can be very helpful if you have a medical condition that requires your doctors to talk and coordinate care.

However, as you noted, you have to get permission from your primary physician to see a specialist. This is how an HMO provider minimizes costs and streamlines treatment. An HMO tries to keep medical treatment in their facilities as much as possible. So trips to doctors outside of the network are often not covered unless it’s an emergency visit. So you have to budget for possibly paying 100% of out of network bills if you are under an HMO and get non-emergency treatment elsewhere.

If you live in a city where a HMO facility is not located this could be one reason you select a PPO plan. Otherwise, you might have to drive a significant distance to stay within your HMO network. PPOs are not just helpful when you want more control over your doctor selection. They are sometimes more widely accepted by different doctors or medical facilities across your state.

Marissa: It sounds like a PPO may have more flexibility and advantages, but it costs more. What are other factors to consider with a PPO plan?

Acquania from The Purpose of Money: It’s also important to note, even with a PPO plan you should try to always visit a doctor that is in the plan’s network. Otherwise, you might pay more for that doctor’s medical care and only be reimbursed up to the amount your plan would have paid a doctor in network. So the flexibility to see specialists or have more control over your doctors does not come with a blank authorization to see any doctor. 

One advantage, however, is that some PPO plans cover your medical expenses outside of your state and sometimes outside of the United States as well. It’s important to check the fine print of your plan first. But my plan will accept overseas medical claims if I see a doctor outside of the United States. Most people never think about medical care when on vacation or traveling, but it matters and you should know what’s covered. Otherwise, invest in travelers’ medical insurance to cover you in the event of an overseas medical emergency. Just note, this type of insurance normally only covers medical emergencies during travel and not routine doctor visits.

If you’ve been following my teachable moments, you know I like to use tables to crunch numbers. Here’s a plan comparison that might be offered by an employer:

Now that we’ve compared the plans, let’s walk through an example where we can actually use some concrete numbers. For the purpose of the PPO, we will assume you’ve already met the $500 deductible for the year. The teacher in me used friendly numbers to make the math easy. But I quickly learned from my research that the numbers are far from friendly; health care is quite expensive in the United States. 

The Verdict

Personally, I chose to enroll in my company’s HMO option. After relocating back to The Bay Area from Washington, D.C., I decided to go with a family doctor with whom I was familiar. She accepts this insurance, so it made the most sense for me. 

I will share that a few months after the open enrollment period, I had a health scare that required me to visit an emergency room. And in the midst of driving to the emergency room, I was frantically trying to recall the details of my plan while asking myself 20 questions. Was the facility I was visiting in network? How much will I have to pay? Should I have enrolled in a PPO? All questions that should not have been at the forefront of my mind at the time. 

Okay, we’ve reviewed some terms, we’ve compared plans, and we’ve crunched some numbers. Maybe you’re leaning in the direction of HMO because you have preferred physicians who accept that insurance.  Perhaps you want the flexibility that comes with a PPO. Now to revisit our original question, HMO or PPO? Ultimately, that’s for you to decide. 

What do you consider when choosing health coverage? Let me know in the comments.

~ Marissa

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