HMO vs PPO: What’s Right for Your Small Business?

Health insurance plans use a provider network system to determine which doctors your employees can see and at what cost. Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) are two of the more popular options. We cover HMO vs PPO, so you can find the right choice for your small business.

HMO Basics

An HMO looks to reduce costs by having a more restricted provider network. Your premiums on these plans will typically be less expensive. In 2016, the average annual premium for an employer-sponsored HMO family plan was $17,978, according to the Kaiser Family Foundation. A PPO plan cost $19,003, more than $1,000 higher per year.

Your employees will also have lower out-of-pocket costs for using medical care with an HMO. The medical providers who join the HMO network agree to discount their services so they gain more patients.

In exchange for the lower cost, your employees will have less flexibility with getting care. The insurance will only cover treatment if the employees see an in-network doctor, unless it’s an emergency. If an employee sees an out-of-network physician for anything besides an emergency, the plan won’t cover the costs at the same rate and the employee will need to pay the full cost on their own.

Also, employees need to get a referral from their primary physician before they can see a specialist through HMO plans. They can’t just book an appointment on their own.

PPO Basics

PPOs give your employees the flexibility to see whichever doctor they want. While PPOs have a preferred network, employees can see other doctors outside of the network and the insurance will still provide coverage. However, employees pay less out-of-pocket for seeing in-network doctors. The choice is up to them.

Employees can also book an appointment with a specialist on their own. They don’t need to get a referral first. In exchange for this flexibility, PPOs are usually more expensive than HMOs. Your monthly premium will usually be higher and employees will need to pay more out-of-pocket for treatment.

Find the Right Option

Whether you should choose an HMO or a PPO depends on the priorities for your office. If your employees are mostly young and healthy, having a more restricted provider network might not bother them since they aren’t seeing specialists or getting care that often. They may prefer the lower cost plan.

On the other hand, if your employees are regularly getting health care, the HMO system could make their life complicated. It’ll take more work to see a specialist plus their preferred doctors might not be in the network.

You should also consider how many medical providers are in your area. If there are plenty of doctors, the HMO restrictions would still leave your employees with options. However, if there aren’t many local options, an HMO could make it difficult for employees to find a doctor.

Employee Input

Before making a decision, you should survey your employees about their preferences. Would they rather pay less or have more flexibility with getting care?

You should also ask them to list their doctors so you’ll see how they line up with the provider network. If most of them are on the list, an HMO would not be an issue. Your employees will still be allowed to see their original doctors. On the other hand, if the providers are out-of-network, an HMO would force employees to change doctors.

By considering the differences between HMO vs PPO, you can find the right option for your next health insurance plan.

David Rodeck is a professional freelance writer based out of Delaware. Before writing full-time, he worked as a health- and life-insurance agent. He specializes in making insurance, investing and financial planning understandable.

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