A preferred provider organization (PPO) is a health plan where an insurance company contracts with hospitals, doctors, and clinics to create a network of participating providers. These providers have agreed to provide medical care to the plan’s subscribers at a negotiated rate. You will pay less if you use doctors, hospitals, and care providers who are in the plan’s network.
Learn more about what a PPO is, how it works, the benefits and drawbacks, and how it compares to other health plans.
PPO Definition and Examples
A PPO is an arrangement between an insurance carrier and a network of preferred providers agreeing to provide health care services at a negotiated price. Encouraging plan subscribers to use in-network providers and facilities creates a higher volume of patients, which allows for discounted rates. You can use hospitals, doctors, and providers outside of the network for an extra cost.
- Acronym: PPO
For example, insurer Aetna offers a PPO plan that provides lower rates for doctors who are in-network, and allows you to see a doctor without a referral.
How a PPO Works
A PPO is offered by private insurance carriers that have a network of doctors, hospitals, clinics, and other health care providers who offer medical care at discounted, negotiated fees. You’ll pay less if you use in-network (“preferred”) providers, but you have the freedom to seek health care from any doctor, hospital, or other health care provider.
A PPO lets you schedule an appointment with any primary care doctor or specialist without a referral, and you won’t need to have a primary care physician coordinating your care.
If the doctors and facilities you use are in your PPO’s network, you will have access to discounted rates on services the plan provider has negotiated for you. Medical care from an out-of-network provider will come at a higher cost since the provider isn’t part of the pre-negotiated discount. For example, a plan might cover 80% of the cost of using a preferred provider but only cover 70% for an out-of-network provider. These percentages vary by plan and are outlined in your summary of benefits.
PPO plans typically include the following charges:
- Premium: This is the fee your PPO plan charges each month to maintain your coverage.
- Deductible: This is a specific annual dollar amount you must pay for covered medical services before your plan starts paying out benefits. If you enroll another family member, you’ll pay two medical deductibles: yours and another for your family members. Typically, your deductible doesn’t apply to preventive services.
- Copay: A flat fee you pay upfront each time you see a network provider or get certain medical services. Doctor visits, hospital stays, prescription drugs, and emergency room visits often have varying copays.
- Coinsurance: Most PPO plans will charge you a coinsurance rather than a copay, which is a percentage of the cost of covered medical services that you pay after meeting the deductible.
- Total out-of-pocket maximum: This is the most you’ll pay in a year for covered services, which includes copays, deductibles, and coinsurance. If your out-of-pocket expenses hit this yearly maximum, your plan will pay 100% of the allowable costs for the remaining plan year.
The cost of using an out-of-network provider will depend on your PPO plan’s allowed amount or the standard rate for the service. If the provider charges you more than the allowed pricing your PPO has set, then you have to pay the difference.
Pros and Cons of a PPO
Lower costs for in-network providers
No primary care doctor needed
- Lower costs for in-network providers: A PPO network comprises doctors and facilities that have negotiated lower rates on the services they provide.
- No primary care doctor needed: PPO plans don’t make you choose a primary care physician.
- No referrals: In most cases, you don't need a referral to visit any doctor, specialist, or hospital. You also don’t have to consult with a primary care physician before getting a referral.
- More expensive: PPO plans are associated with higher out-of-pocket costs, including a higher monthly premium, copay, and a mandatory deductible before you can receive benefits.
- More responsibilities: You’ll have to monitor in-network versus out-of-network providers to control costs.
PPO vs. HMO vs. EPO vs. POS
There are four basic provider networks available to customers: PPO, HMO, EPO, and POS. Each one differs in its own way.
|Premiums||High||Low compared to PPO||Low compared to PPO||Low compared to PPO|
|Referrals required||No||Yes||Yes, for some plans||Yes|
|Deductible||Low for some plans||Low||High||Low|
A PPO health plan provides discounted medical care through a network of providers. You can also see specialists and out-of-network providers without referrals.
Health Maintenance Organization (HMO)
An HMO plan limits coverage to care and services from providers who contract with the HMO. Out-of-network care isn’t usually covered except for emergency care, and out-of-area urgent care and out-of-area dialysis for Medicare-related HMOs. You may need to work or reside in the plan’s service area to qualify for coverage. You must designate a primary care physician who coordinates all your care.
Exclusive Provider Organization (EPO)
An EPO plan only covers services and care from hospitals, doctors, or specialists who are in the plan’s network, with an exception for emergency or urgent care visits. Generally, you don’t need a primary care physician or referral to visit a specialist.
Point of Service (POS)
A POS plan is technically a combination of a PPO and HMO. It requires you to have a referral from your primary care physician to see a specialist. Coverage for out-of-network providers is also available, but with a higher copay.
- A PPO plan has a group of preferred or in-network providers who provide medical care at a negotiated lower rate.
- You can visit out-of-network doctors and specialists without referrals, but at a higher cost.
- PPO plans tend to have higher premiums and are often tied to a deductible you must pay before you start receiving benefits.
- You or your doctor may require a preapproval from your PPO before some medical procedures, treatments, or services are performed.