Health Insurance

What is a PPO?

Preferred provider organizations (PPO) give you control over when and where and you receive care. While similar to other plans such as HMOs and POS, PPOs offer the benefit of greater provider flexibility, but may come with higher premiums and deductibles. 

What is a PPO

PPO stands for preferred provider organization and is a type of health insurance plan. A PPO differs from other popular options such as HMOs and POS plans because of its flexibility. For most PPO plans, patients do not need to choose a primary care physician (PCP) and do not need referrals for specialist services. In addition, PPOs typically provide some coverage for services delivered outside of the preferred provider network. The tradeoff, however, is higher monthly premiums and deductibles for healthcare services. 

Understanding the Preferred Provider Organization (PPO)

Primary care physicianNoYesNoYes
Out-of-network careYes, partially coveredNoMedical emergencies onlyYes, with limitations
Pre-approval for medical servicesYesYesYesYes

A PPO is a type of health insurance plan and, in a broad sense, fills much the same role as a health maintenance organization (HMO), exclusive provider organization (EPO), or point-of-sale (POS) plan. Where PPOs differ, however, is in their use of preferred providers. 

In a PPO, using a preferred provider — a physician, pharmacy, or facility within the PPO’s network — results in lower costs for care. Patients can also use providers outside their network and still be covered by PPO insurance, though the PPO plan may not contribute as much to the cost of out-of-network providers, meaning you may have to pay a higher deductible. But PPOs still offer more coverage for out-of-network options than HMOs and POS plans, which provide limited or no coverage for services not within network. PPOs are also one of the most popular types of health insurance plans

How Do Health Insurance Networks Work?

Health insurance plans allow policyholders to access medical care at a lower cost than they would pay out of pocket if they were uninsured, as long as they use services and healthcare providers that are covered under the plan’s network. Insurance companies make agreements with healthcare providers to ensure patients pay less for care than if they were uninsured. In return, physicians and specialists have a dedicated base of clients because policyholders must stay within the insurer’s network to receive the lower care costs.

For example, a health insurance plan might list 4 local PCPs as in-network providers. If you make an appointment with one of these physicians, your insurance may cover some or all of the cost, depending on the details of your deductible and copayment terms. However, if you choose another physician outside of these 4 in-network PCPs, your insurance may cover only a portion of the costs, alongside higher deductible and copayment requirements — or provide no coverage at all.

Do You Need a Primary Care Physician In a PPO?

A primary care doctor or physician is typically not required in a PPO, unlike an HMO or POS. Some PPO plans also allow the insured to access specialist services — such as dermatologists or psychiatrists — without a referral, though this depends on the insurer and the plan. However, many PPO insurers do still require referrals for specialist services.

While you may not need a PCP for a PPO, it’s still worth finding a general practitioner that’s in your insurance network. A general physician can help you maintain consistency in care, as they would be familiar with your health history, prior appointment results, and any ongoing issues if you keep going to them on a regular basis.

Can You Get Out-of-Network Care In a PPO?

Out-of-network care is defined as any care that comes from a provider that is not on your plan’s list of preferred providers. For example, your plan might list 13 physicians in your area that are part of their network. If you receive service from any of these physicians, you would pay the deductible for in-network service — if you haven’t already met it for the calendar year — along with any copayments. Your insurance would then cover the rest.

If you opt to seek care from a physician who is not part of the 13 in-network options, though, you would be seeking out-of-network care. You can still access care, but may have to meet a higher out-of-network deductible alongside a higher copayment fee. 

For example, your copay for in-network services may be $25, whereas your copay for out-of-network services may be significantly higher, based on what that particular doctor chooses to charge. Similarly, your in-network deductible may be $800 while your out-of-network deductible may be $1,500. These are often treated as separate deductibles, meaning even if you have met your $800 deductible for in-network care, that $800 may not count towards your $1,500 out-of-network deductible. However, some PPOs offer combined deductibles for both in-network and out-of-network care.

Flexibility of coverage for out-of-network care is one of the biggest differentiators between PPOs and other health plans. While HMOs or EPOs may offer limited coverage for out-of-network services, PPOs make it possible to access a much broader array of services without paying entirely out of pocket.

Do You Need Pre-approval for Procedures In a PPO?

PPOs have different rules around what requires pre-approval and what does not based on the individual insurer, but the general rule of thumb is that if a procedure is complex or expensive — such as an MRI, long-term outpatient plan, or surgery — pre-certification is likely necessary. A pre-approval, also known as a pre-certification, is when your insurer authorizes a test or treatment. It is a process handled by your doctor who has requested the procedure. However, keep in mind that pre-approval does not necessarily mean the entirety of the cost will be covered by your insurance.

For example, you may have an ongoing condition that leads you to make an appointment with a cardiologist. Your PPO may not require a referral for this appointment as long as the cardiologist is in your PPO network, and your visit may be mostly covered aside from copays and any deductibles you need to meet. 

But if the cardiologist then recommends an expensive test to help determine the root cause of your heart issues, they may need to send this request for pre-approval by your insurance company. The doctor may send notes or other documentation about your condition along with relevant pictures or scans, their diagnosis, and their recommended course of action. Your PPO insurer will then approve or deny treatment, or they may suggest a less costly alternative before approving the more expensive option.

What Are the Costs of a PPO?

There are 5 general costs of a PPO: premiums, deductibles, copayments, coinsurance, and your out-of-pocket maximum.

  • Premium: This is the amount you pay each month for your plan. You pay this amount regardless of whether or not you access any health services, and the amount may increase year over year as you age and your health risk profile increases. 
  • Deductible: This is the amount you pay out of pocket before your insurance activates. Once the deductible has been fully paid for the year, you may not need to pay it again until the following year. Some PPO plans have 2 deductibles: one for in-network providers and another for out-of-network providers. 
  • Copays: This is the flat fee you pay out of pocket for a service, even after your deductible has been met. This means that you pay this amount every time you receive treatment from a PCP or specialist. The fee amount can differ for generalist practitioners and specialists. This is typically charged at the time of the appointment.
  • Coinsurance: This is usually represented as a percentage and designates how much of the total cost of the healthcare service you and your insurer will pay once your deductible has been met. The coinsurance percentage can differ based on the type of procedure, test, or treatment.
  • Out-of-pocket maximum: This is a set amount that indicates the most you would have to pay for services covered by your health insurance each policy year. Any eligible costs beyond this amount would be completely covered by your health insurance.

Here is an example of these costs in action if your plan had the following costs:

  • Premium: $500 per month
  • Deductible: $2,000 per year
  • Copay: $25 per appointment
  • Coinsurance: 30% for outpatient surgery
  • Out-of-pocket maximum: $8,700

This means that you pay $500 per month whether you use your plan or not, and your PPO might not cover any services until you’ve paid your $2,000 deductible for the year. Every time you go to your PCP or receive any kind of medical treatment, you pay a $25 copayment. If you need outpatient surgery from an in-network provider and you have met your annual deductible, you would pay for 30% of the procedure’s cost while your insurer would pay for the remaining 70% of the cost.

Then, if your covered medical procedures end up costing you more than $8,700, you would only pay up to that amount and any remainder would be covered by your health insurance.

On average, PPOs have higher premiums and deductibles than HMOs or POS plans because they provide greater flexibility when it comes to choosing a provider, specialist access without referrals, and out-of-network coverages.

Advantages of PPO Insurance

There are several advantages of PPO health insurance plans compared with other health plans. Depending on your budget and overall health, these plans may be worth considering.

  • Increased care flexibility: PPOs let you choose your care provider, even if they are out of network. While these non-preferred providers come with extra costs, your PPO plan remains in effect.
  • No referrals required: Specialist services can be accessed directly, rather than requiring a referral from your PCP. This reduces the time it takes to get the care you need. 
  • Large provider groups: PPOs have large provider groups that include PCPs, specialist services, inpatient and outpatient providers, and mental health professionals, giving you an abundance of choice. 

Disadvantages of PPO Insurance

PPO plans are not without fault, and there are some cases where it may not make sense to purchase this type of health plan.

  • Higher overall costs: The premium and deductible costs of PPOs are higher than similar plans, such as HMOs and POS plans.
  • More plan management needed: While accessing specialists without a referral is a benefit of PPOs, it also means more time spent managing your own plan to make sure the providers you’re using are in network — or, if not, what it may cost to seek care from them.
  • Higher out-of-pocket expenses: If you choose to seek out-of-network care under a PPO, you would pay higher copays, deductibles, and coinsurance for that care.

PPOs vs. Other Health Plan Types

Along with PPOs, other common health plan types include health maintenance organizations (HMOs), exclusive provider organizations (EPOs), and point of sale (POS) plans. Depending on your current health needs, health history, and budget, your plan of choice may differ. 

PPOs vs. HMOs

Where PPOs allow you to use out-of-network care and still be covered under your plan, HMOs typically do not provide any out-of-network coverage at all except in case of emergency. But because HMOs have more limitations for out-of-network care as well as a smaller pool of in-network providers than PPO plans, they typically have lower deductibles and premiums.

As a result, it may make sense to choose an HMO over a PPO if local healthcare service providers are covered under the plan and you have no intention to move out of the HMO’s network in the near future. If you also do not mind designating and going through a PCP for specialist referrals, an HMO’s limitations could be overlooked in favor of its lower costs. A PPO, meanwhile, may be a good choice if you’re looking for more control over your healthcare and don’t mind paying more for that flexibility.

PPOs vs. EPOs

An EPO is similar to a PPO in that it also uses a network of preferred providers. Where it differs, however, is that this network is exclusive — care from out-of-network providers won’t be covered by an EPO unless it is deemed a medical emergency. The advantage is that EPOs often have large provider pools but come with lower monthly premiums than PPOs, although deductibles are typically higher.

Using an EPO makes sense if you’re cost-conscious and your preferred providers are in network, while a PPO may be a good choice if you want to keep your deductible lower.

PPOs vs. POSs

POS plans have fewer service provider choices but also come with lower premiums and deductibles than PPO plans. Referrals under a POS plan require a visit to your PCP, and they don’t offer coverage for care outside the POS provider network. If lower costs are your primary concern and the POS network has the care providers you need, it may be a good choice. If you need more flexibility for out-of-network care and prefer more provider options, consider a PPO.

What to Consider When Buying a PPO Plan

If you’re considering a PPO health insurance plan, it’s worth taking stock of your current provider network, the overall costs of PPO insurance, and how it compares to other insurance plans. 

For example, if you already have a set of preferred healthcare providers under your current insurance plan and want to keep them in network, check to see how many of these providers could carry over to your new coverage. It’s also worth weighing the costs of a PPO plan against other options. While an HMO may offer less flexibility than a PPO, the premium and deductible costs are typically lower. 

Finally, consider your current care needs. If you prefer the ability to access specialist care without a referral and get care when and where you need it by paying more out of pocket, a PPO plan may be a good fit. If you rarely see anyone but your PCP, plans like HMOs, EPOs or POSs may better fit the bill.