Medicare Advantage HMOs vs. PPOs

Are you considering signing up for Medicare Advantage but unsure of which health plan option is best for you? One of the biggest decisions you’ll have to make is between a Preferred Provider Organization (PPO) or a Health Maintenance Organization (HMO).

Medicare Advantage plans offer greater protection than traditional Medicare coverage in that they provide add-on benefits such as dental care, fitness programs, and prescription drug coverage. With both HMO and PPO options available, it can be difficult to know which one fits your needs best.

Comparing Medicare Advantage PPO and HMO plans requires looking at specific criteria related to cost sharing and provider access. Knowing these features ahead of time can help make the selection process easier. In this article, we’ll take an in-depth look at the important differences between PPOs and HMOs so that you can make the right decision for your healthcare needs.

How Does Medicare Advantage Work?

Medicare Advantage plans combine Part A and Part B coverage. Many Advantage plans also include Part D or Medicare prescription drug coverage. To sell these plans, private insurance companies must meet government standards for services covered. These services include emergency and urgent care and medically necessary services covered under Original Medicare. Part C plans may also include additional benefits such as coverage for vision, hearing, and dental services or help subsidize the cost of healthy activities such as gym memberships.

If you want to enroll in a Medicare Advantage plan, you have three options: The Initial Enrollment Period, the Open Enrollment Period, and the Medicare Advantage Open Enrollment Period. The Initial Enrollment Period starts when you are first eligible for Medicare. For example, when you turn 65, you are eligible to enroll in Medicare or a Medicare Advantage plan starting three months before you turn 65 and for three months after you turn 65.

If you miss the Initial Enrollment Period, you can sign up for an Advantage plan during the Open Enrollment Period, which runs each year from Oct. 15–Jan. 7. During this time, you can join, switch, or drop a plan. Your new coverage begins on Jan. 1 as long as the plan provider receives your request by Dec. 7.  

Finally, the Medicare Advantage Open Enrollment Period lets you switch to a different Advantage plan if you’re already enrolled or switch to Original Medicare. This period runs from Jan. 1 to March 31 each year.

Medicare Advantage plans are typically offered as either HMOs or PPOs but may also be available as EPOs, POSs, or SNPs.

Medicare Advantage PPO vs. HMO Plans

HMO and PPO plans both offer access to a network of healthcare professionals and services. Insurance companies negotiate with healthcare providers to create these networks. In exchange for a steady stream of patients, providers typically agree to service cost discounts, reducing the total cost of healthcare.

Where PPOs and HMOs differ is in how they approach these network services. For example, HMOs tend to be more restrictive; if you see a provider outside your network for care, it may not be covered. PPOs offer greater flexibility but may come with higher premium costs and include a deductible.

How Medicare Advantage HMOs Work

Medicare Advantage HMOs deliver care through a network of approved healthcare providers. Some plans HMOs may require patients to select a primary care physician (PCP) that is their first point of contact for any healthcare concern and may provide specialist healthcare access only after a PCP referral. 

In addition, care provided outside your HMO network is not covered by your Medicare Advantage plan, meaning you pay this cost out of pocket. This can be problematic when traveling outside your coverage area to a different city or state. 

Pros and Cons

Regarding Medicare Advantage HMO vs. PPO comparisons, HMOs have distinct benefits and disadvantages.

Pros

• You can choose a PCP: Under an HMO, you can choose a PCP from a large pool of in-network choices. This lets you find a provider in your local area that delivers the kind of care you want for you and your family. 
• Large healthcare provider networks may help lower costs: Because HMOs have large healthcare provider networks, they may be able to offer services at a lower cost than other plans, such as PPOs. This is helpful because even in covered care situations, patients are still responsible for costs such as copayments and coinsurance. 
• They may offer cost-effective premiums than PPOs: HMOs may have lower monthly premiums and lower (or no) deductibles, making them a cost-effective alternative to PPOs. 

Cons

• No coverage outside of your network: If you choose an HMO, there is no coverage for services outside your network. If you require emergency care while traveling out of state, you may have to pay a significant amount out of pocket.
• PCP referral required for specialist care: To access specialist care, patients must make a PCP appointment and obtain a referral.
• Reduced flexibility: While local HMO networks are large and diverse, there is limited flexibility for any care coverage outside this area.

How Medicare Advantage PPOs Work

Medicare Advantage PPOs also offer a network of care providers. The primary difference between a PPO and an HMO is that healthcare services from providers outside your network may still be covered. While you may pay more for out-of-network care, you are not on the hook for the entire cost out of pocket. In addition, while some PPO plans have you select a PCP, primary care referrals are not required to see specialists. 

Pros and Cons

For Medicare Advantage PPO vs. HMO plans, PPOs have benefits and drawbacks.

Pros

• More choices for care: With a PPO plan, you can access care from any provider and still receive some coverage. 
• No referrals are required for specialists: Specialist services can be booked without needing a PCP referral or prior insurance approval.
• Fewer unexpected costs: If you require care from a provider outside your area, you are not responsible for the entire cost.

Cons

• Higher costs for plans: Because they offer greater flexibility and access to specialists, PPO plans may have higher monthly premium costs.
• More complexity in controlling costs: To avoid overspending, policyholders need to track healthcare costs in and out of networks, making these plans more complex to manage.
• May include a larger deductible: PPO plans may include a larger deductible to offset the cost of healthcare spending outside provider networks. 

Choosing Between a PPO or HMO Plan

When choosing between a Medicare HMO or PPO, there are several factors to consider.

First is your current need for care and the complexity of this care. Next is your predicted budget for healthcare services, along with your current income. Finally, it’s worth considering the stability of your current situation. For example, if you regularly travel for work or have plans to move soon, this may affect your decision.

Consider a family with two young children. All family members are healthy, and doctor’s visits are infrequent. They’re established in their current neighborhood, but one of the parents has recently lost their job. In this case, an HMO Medicare Advantage plan may be a good choice. A large number of network providers helps keep overall costs down. At the same time, the family’s plan to stay in the local area lowers the chances of going outside this network, reducing unexpected out-of-pocket costs. Lower-cost HMO premiums combined with small or no deductibles help keep spending under control.

A PPO might be a good choice for an older couple with more complex medical needs and whose children have left the family home. In this case, access to specialist care without referrals can make it easier to access health services. In contrast, the ability to use out-of-network services with some coverage allows the couple to travel without worrying about lack of access to care. If they have a reliable income stream or access to retirement accounts, the higher costs of a PPO may be offset by the convenience of greater flexibility. 

Other Medicare Advantage Plan Types

While HMOs and PPOs are the most common type of Medicare Advantage plans, Part C coverage providers also offer other types, including Exclusive Provider Organization (EPO) plans, Point-of-Sevice (POS) plans, and Special Needs Plans (SNPs).

Exclusive Provider Organization

Exclusive Provider Organization (EPO) plans are similar to HMOs in that coverage is only offered for in-network services. The difference is that these networks are larger than those of HMOs and may include providers outside your local area, making it easier to get care when needed. Some EPOs allow you to access specialist care without a referral but may come with higher deductibles to offset the costs of more intensive or long-term care.

Point-of-Service

Point-of-Sevice (POS) plans plans combine features of both HMO and PPO plans. Similar to an HMO, a POS plan asks policyholders to choose a PCP and get a referral from their PCP to see in-network specialists. Unlike an HMO, POS plans provide coverage for out-of-network healthcare and specialist services with or without a referral. The difference is cost: If patients get a PCP referral and use an in-network specialist, their costs are lower than if they choose to use an out-of-network specialist without getting a referral.

Special Needs Plans

Special Needs Plans (SNPs) are limited to those with specific diseases or healthcare conditions. You can join an SNP if you have Medicare Part A and Part B, live in the plan’s service area, and meet the eligibility requirements. Since Medicare Advantage plans include Part A and Part B, they also meet these criteria. 

There are 3 SNP types, each with its own requirements. Chronic Condition SNPs (C-SNPs) are available if you have a chronic condition such as cancer, chronic heart failure, dementia, or end-stage liver disease. Institutional SNPs (I-SNPs) are available if you live in a care facility such as a nursing home, skilled nursing facility, or psychiatric hospital. Dual-Eligible SNPs (D-SNPs) are available if you are eligible for both Medicare and Medicaid in your state.