HMO vs. PPO: Choosing the Best Option for Your Company?>

Finding the right health insurance plan for your company can be confusing for any employer, once you start wading through factors like deductibles, co-pays, networks, and tax deductions.

Most companies will narrow down their options to an HMO or PPO network. The HMO vs. PPO decision isn't cut-and-dry--it depends on the needs of your company and employees. When it comes down to it, your decision is likely to be based on the following factors:

• Cost: For most businesses, this is the deciding factor--they want the best coverage for the lowest premiums.
• Goals of your health plan: These can range from providing basic low-cost coverage to your employees to attracting quality hires with a more comprehensive benefits package.
• Needs of employees: Look at the overall health and demographics of your employees. Is your company primarily young professionals who are starting families? Do they take frequent sick days?

Once you have evaluated the needs of your employees and the ultimate goals you have for providing health coverage, you can look at HMO and PPO insurance more closely and determine which is right for your company.

What is an HMO?

An HMO (Health Maintenance Organization) is a type of insurance that offers employees a network of doctors and specialists from which to choose. HMO insurance tends to be the most affordable option for employers and their employees.

The HMO keeps costs down by denying coverage for treatments deemed unnecessary and requiring all members to choose a PCP (primary care physician) within the network. The PCP is the first point of contact for all medical conditions. If a patient needs to see a specialist, the patient's PCP first needs to give a referral.

The drawbacks of an HMO include:

• Limited number of doctors for patients to choose from
• Potential for illnesses to go untreated if the HMO denies certain treatments
• Restrictions on doctors regarding referrals.

On the other hand, HMO benefits include:

• Low costs for the insured and employers
• No deductible; the patient pays only a co-pay when visiting a doctor.

What is a PPO?

A PPO (Preferred Provider Organization) also offers a network of doctors from which to choose, but patients have the freedom of choosing whichever doctor or specialist they want to see, regardless of whether or not they are in the network. In addition, they do not need a primary care physician, which eliminates the need for a referral to visit a specialist.

Potential drawbacks of a PPO include:

• Higher costs for visiting a doctor outside of the network: If you need to visit a doctor that's outside your PPO's network, you may be charged additional fees.
• Higher out-of-pocket costs: PPO members may have to pay for services up-front and then get reimbursed.

Some people consider the freedom to choose their doctor or specialist worth the extra cost of a PPO. In addition, those who have conditions or dependents who need to regularly see a specialist might prefer a PPO, since it doesn't require a primary care physician to give referrals.

Whether you opt for an HMO or PPO, choosing the right insurance plan for your employees will take effort and research to determine what best meets the needs of your company at a reasonable price.

Resources

Bihari, M. (2010). What are the differences between HMOs and PPOs? Retrieved July 5, 2010, from http://healthinsurance.about.com/od/understandingmanagedcare/a/HMOs_vs_PPOs.htm.

InsureLane (2007). HMOs vs PPOs. Retrieved July 7, 2010, from http://www.insurelane.com/health/hmo-vs-ppo.html.