As you head into retirement, you'll need to set aside time to think about your plans for health care. Once you hit 65, retired or not, you have the option to enroll in Medicare. With it comes a menu of health care options, including Original Medicare, Medicare Advantage, HMOs and PPOs—and deciding can feel slightly overwhelming.
Before you choose your plan, it's critical to understand the differences between them. Here's a breakdown of HMO vs. PPO plans, including some of the pros and cons of each that can help you determine which option is the best for you.
Your Choices With Medicare
When it comes to Medicare, you have your choice of plans. Medicare, also called Original Medicare, comprises Part A, known as hospital insurance, and Part B, your medical insurance. Original Medicare is run by the federal government. Medicare Part C is referred to as Medicare Advantage.
With Medicare Advantage, the government works with approved private insurance companies to provide coverage. In many cases, Medicare Advantage will cover some of the costs not included in Original Medicare, such as eye and dental exams. It works similarly to Medicare, but it adds more coverage and is run by a private insurer.
If you choose to go with a Medicare Advantage plan, you'll have a menu of options to choose from based on where you live and the provider network. As you go through the plans, you'll typically see two labels: health maintenance organization (HMO) and preferred provider organization (PPO). There are key differences between these plans that could impact your coverage.
What Is an HMO?
An HMO is an insurance plan with its own network of doctors, hospitals and other health care providers. Any member in the network—from doctors to hospitals—has agreed to lower their rates and meet specific quality standards to be a part of the plan.
While that lower cost can be attractive, it does come with less flexibility. If you choose an HMO plan, you must only see providers within that network. Typically, it is much more challenging to see a doctor or specialist outside the network; you'll need to get approval first. If you choose to go outside the network without approval, those costs probably won't be covered by your plan.
Many HMOs also require you to choose a primary care physician (PCP). This person essentially acts as the quarterback of your health care. If you need to go to a specialist or seek outside treatment, you'll need to go through them first for approval and care coordination.
The primary benefit of an HMO plan is the cost. Usually, the premiums and the deductibles are lower compared to a PPO plan. However, there are co-pay fees for any visits that aren't for preventive care.
What Is a PPO?
A PPO is a type of health care plan that, similar to an HMO, offers a preferred network of doctors, hospitals and health care providers. As with an HMO, member providers that join must meet a standard of quality of care and offer lower rates to participants.
Unlike HMOs, however, PPOs tend to have much higher levels of flexibility. With a PPO, you can go outside your network to see doctors and specialists, and you don't need approval from a PCP to make that happen. In fact, you don't need to declare a PCP for a PPO plan.
If you do go outside your network, you still retain coverage. You'll typically have to pay a higher fee for your care; however, you won't need to cover most or all of the costs out of pocket, as you would with an HMO.
PPOs tend to cost a little bit more overall. These plans often have higher deductibles and premiums — but they carry far fewer restrictions when it comes to seeking out-of-network care.
HMO vs. PPO: Comparing the Plans
For the most part, HMOs and PPOs are relatively similar. Yet there are a few key differences that do matter. Here are some of the pros and cons of each plan for specific needs.
If you have a doctor you love with your current health insurance, make sure to ask if they accept Medicare — and, if so, which types of plans. If you choose an HMO plan, for example, and your current doctor is out of network, you will have to choose a new PCP.
While PPOs offer more flexibility with doctors, and you don't need to name a PCP, it also puts you in charge of managing your care. With an HMO plan, most referrals and other specialist appointments are run through your PCP. What works best for you is a matter of preference.
Both HMOs and PPOs tend to have large networks of high-quality doctors, hospitals and medical professionals. Having a network in place helps save you money on your plans.
However, the size of the network matters. Typically, PPOs have larger networks, giving you more options for your care. HMOs tend to be more limited in the networks they provide.
The difference between HMOs and PPOs becomes more striking when considering out-of-network care. If you are in an HMO and go outside the network without prior approval, you will likely need to cover those costs out of pocket.
Although PPOs carry higher costs for out-of-network care than they do for care inside the network, that care will still be covered under your plan. With PPOs, you have the flexibility to seek out care and specialists from outside your network without prior approval.
Perhaps the most significant point of comparison when looking at an HMO vs. PPO is cost. Rising health care costs can create strain as retirement approaches, and Medicare will only cover about 80% of health care costs. Medicare Advantage plans (including HMOs and PPOs) cover significantly more, but they also cost more.
HMOs tend to be more affordable, since they often have low or no deductibles. However, expect co-pays for every non-preventive visit. PPOs ask you to pay more for the flexibility of choice and the ability to go out of network for specialists. Typically, there are higher premiums and deductibles with PPO plans, but co-pays vary depending on the specific plan.
PPOs tend to be the most popular option. A study from the Kaiser Family Foundation on employer health benefits shows for employer-sponsored health care plans, PPOs are more popular with employees and are offered more often than HMOs.
Which Plan Is Right For You?
Choosing a health care plan is an inherently personal choice. What might be a big negative to you could be a positive point to another, depending on your budget, location and health care needs. Even within network plans like HMOs and PPOs, pricing, coverage and deductibles can vary.
It's critical to look through each plan option before settling on one. Weigh the potential costs — both in terms of the money you'll spend and quality of care you'll receive. You might prefer being able to see specialists with a PPO or having your PCP provide more managed care with an HMO.
As you search, don't hesitate to chat with a Medicare or insurance specialist. They can walk you through the differences between an HMO vs. PPO and give you more insights on each, so you can make the best decision for your needs and goals.