HMO vs. PPO vs. FFS Health Insurance: What's the Difference?

It's more than just the price of coverage.

Health history claim form used in a doctor's visit, once the patient has provided their type of health insurance
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Having to obtain your own health insurance coverage, whether you're self-employed or for any other reason, can be a little overwhelming if you're not an insurance expert. A few options you might come across are Health Management Organization (HMO), Preferred Provider Organization (PPO), and fee-for-service (FFS) plans.

Many of the plans you'll find offered, both on and off your state's individual health insurance exchange, will be HMO plans, which are the least expensive but also offer the least flexibility. Also common are PPO plans, which are more flexible but more expensive. FFS plans are much less common these days, but if your state offers them, it's worth comparing their features to those of an HMO or PPO.

What Are the Differences Among HMO, PPO, and FFS Health Insurance?

HMO PPO FFS
Least expensive Generally more expensive The most expensive
Less flexibility More flexibility The most flexibility
Closed network Option to go out-of-network No special network
May need a referral from PCP to see a specialist Generally don't need a referral to see a specialist No referrals needed

Costs

HMOs may appeal to you if you're looking for lower premiums and out-of-pocket costs for things like co-pays and deductibles. In terms of the advantages, these plans tend to be the least expensive coverage options.

PPO policies also will carry deductibles and require co-payments. Cost-wise, a PPO plan will typically have a higher deductible than an HMO plan. The cost of out-of-network treatment might not count toward fulfilling your annual deductible, so if you're considering this type of policy, read over your coverage terms carefully.

Like all health insurance policies, an FFS policy will require you to pay deductibles and co-payments for your medical services. The amount of the co-payment and deductible will largely hinge on your plan coverage and premium rates in your state. FFS policies are generally the most expensive type of health insurance you can purchase if you're seeking coverage outside of an employer's plan.

Note

FFS policies are also sometimes called "indemnity plans."

Flexibility and Network

While HMO plans may be the least expensive options, they require you to give up flexibility in choosing your doctor or medical facility. You're limited to choosing your physician from the list of providers included in the HMO policy. In some cases, the list can be quite restrictive.

HMO plans may have what's called a "closed network," which means the insurer won't pay anything for your care if you see a doctor or other health care provider who is not in the network. The exception to that rule is if you need emergency care while you're outside of your immediate network. In that scenario, your HMO plan may still cover the cost of care.

Important

As part of your enrollment in an HMO plan, you must choose a primary care physician (PCP) to oversee your medical care.

PPO plans give you more flexibility than an HMO. When you enroll in this type of plan, you'll be given a list of "preferred providers" who have agreed to participate in the plan. These doctors and hospitals are called "in-network providers," and it will cost less for you to see them for healthcare.

You also have the option to visit another provider of your choice, even if they are not in the network. In that case, your insurance may cover part of the service, but typically you'll be required to pay for a larger percentage out of your own pocket.

With FFS plans, you can choose any doctor and any hospital you want. You pay the bills directly, and then you file the paperwork with your insurer to be reimbursed for the charges. That arrangeent makes them exceptionally convenient but also costly.

Referrals

With an HMO plan, you may have to get a referral from your primary care physician in order to see a specialist, which could be a headache if you or a family member covered by your plan require specialized care.

Typically, a PPO plan won't require you to get a referral to see a specialist. Again, it offers more flexibility than an HMO plan.

With an FFS plan, you always have the flexibility to choose the provider you want. That means there's no need to get a referral—simply schedule your appointment with your chosen provider.

Which Is Right for You?

When comparing different individual health plans, you should start with the features that are most important to you and your family. Two significant considerations with these three types of plans are cost and access to the healthcare providers you prefer to use. For example, if choosing your own doctor is the most important thing to you, then you'll need to choose an HMO or PPO plan that includes your doctor, or you can select an FFS plan, assuming that one is available in your area.

On the other hand, if keeping your costs down is critical, you may want to look more closely at an HMO plan. However, be careful not to be deceived by a low premium. Make sure you also compare expected out-of-pocket costs. Once you've determined which type of plan will suit you best, you can begin to compare individual policies under that umbrella.

The Bottom Line

HMO, PPO, and FFS are terms for different types of physician networks offered by a health insurance policy. While HMO plans offer you fewer provider choices, they usually have the lowest premiums and out-of-pocket costs.

On the other hand, PPO plans offer greater flexibility, but they will tend to cost you more out of pocket. Finally, FFS plans allow you to choose any provider you want. However, having this type of flexibility is often costly. Those plans are becoming less and less common.