HMO vs PPO: What Is Never Explained to You

What happens when a PPO bill comes back out of network?

This is a first-hand story, not an example. A relative of one of my clients, who is not a client herself, called me about a bill of roughly $20,000 on her PPO. She had gone out of network for an elective procedure. She went to the billing office herself, brought up the No Surprises Act, and the charges came down.

Her plan was Blue Cross group coverage through her husband's work. Nobody had explained to her how much out-of-network care matters on a PPO. After I walked her through the Act, the billing office revised the bill down to roughly a couple thousand dollars.

About six months later she called me again, this time about Medicare for her dad, and mentioned how it turned out. Every bill and every plan is different, so I can't promise anyone the same result.

What is the No Surprises Act?

The No Surprises Act is a federal law that took effect in 2022. It bans most surprise out-of-network bills for emergency care and for out-of-network providers at in-network facilities. The insurer and provider must work out payment between themselves, or go to arbitration. Elective out-of-network care is still on you.

For the official explanation, see CMS: No Surprises Act.

What is California's AB 72?

AB 72 is California's own surprise-billing law, and it was broader in some ways than the federal law that came after it. It mainly applies to state-regulated plans, not self-funded plans, so which protections you have depends on your plan.

For the official explanation, see the California Department of Managed Health Care and the California Department of Insurance page on surprise medical bills.

What is the difference between a PPO, an HMO and an EPO?

A PPO lets you use any doctor without a referral, but you pay more out of network. An HMO keeps you in a network and usually needs a primary care doctor to approve specialists, with lower premiums and copays. An EPO is network-only like an HMO, with no referrals like a PPO.

An EPO generally has no out-of-network option, though true emergencies are often still covered. That is its real value. One out-of-network claim on a PPO can blow up a deductible. An EPO removes that surprise by making the network the whole story.

Why can surprise billing be so expensive?

An out-of-network provider on a PPO has no contract with your insurer, so no negotiated rate limits what they can charge. They bill what they choose, the insurer pays a fraction, and you get the difference. Even with the No Surprises Act, many people still pay it because no one challenges the bill.

The insurer rarely explains this, and the provider's billing office rarely brings it up. It is also why one elective out-of-network visit can lead to a bill far larger than people expect.

Is there a video that explains HMO vs PPO?

Yes. I have a one-minute-fifty video that explains the difference between an HMO and a PPO in plain language. You can watch it below, and you can find more short videos on other benefits questions employers and employees ask in my video library.

Video transcript: As you look for a health insurance plan, you may notice that there are a lot of confusing terms, such as HMO and PPO. What's worse is that you may have no clue what any of these terms mean. Knowing the differences between these plans can help you choose the one that's right for you and your needs. Let's explore the difference.

So what does HMO mean? HMO, or health maintenance organization, means the plan only has coverage for in-network providers. In addition, you will have to get referrals from your primary care doctor to see a specialist, and pre-authorization from the plan in order to get more expensive procedures and services. In exchange for these limitations, HMO plans are generally less expensive than other types of plans.

So what does PPO mean? PPO stands for preferred provider organization. A PPO plan is not restricted to in-network providers. However, PPO networks are generally larger, and there are typically no referrals or pre-authorization required. PPO plans tend to have a higher monthly premium in exchange for the flexibility and freedom they provide.

In addition, you may have also heard of other plans, such as EPO and POS. These types of plans are a crossover between HMO and PPO, with some offering more flexibility. The EPO plan is usually a smaller PPO network but without the out-of-network benefits. The POS plans can crossover between HMO, PPO and out-of-network.

Remember that when it comes to selecting your health care plan, there is no right or wrong choice. Having a strong understanding of these plans and how they work will help you in choosing the plan that best fits your needs. If you have any additional questions, feel free to reach out to NP Benefit Services through phone or email. We're here to help.

Transcript is taken from the video's captions and lightly punctuated.

What does a local broker do about all this?

A local broker checks your employees' doctors and hospitals against each plan's network before you choose, and explains what happens if someone goes out of network. It is a small step up front that can save an employee a very large bill later.

I walk through that process in detail in Why Inland Empire Employers Need a Local Health Insurance Broker. If you want to know how your group's plan handles out-of-network care, call NP Benefit Services at 888-954-8999.