What Is PPO Health Insurance?

PPO health insurance, a form of managed care, prioritizes a network of preferred health care providers but also covers some out-of-network care at higher out-of-pocket costs. PPO plans have higher premiums than other types of health plans like EPOs and HMOs.

Like other managed care plans, PPOs operate on a cost-sharing basis, meaning your insurer pays a portion of your costs after you meet your deductible.

PPOs are a good choice if you have diverse health care needs and are likely to need care outside the plan's network.

A PPO, or Preferred Provider Organization, is a managed care arrangement with a network of contracted health care providers offering services to its members at predetermined rates.

PPO health insurance provides flexibility by allowing members to seek care outside the network, though this incurs higher out-of-pocket costs than in-network services. PPO plans do not require a primary care doctor, and members can directly access specialists without needing referrals.

PPOs typically include coverage for prescription drugs, the specifics of which can be found in the plan's formulary — a list of drugs covered by the health insurance.

While PPOs offer more flexibility and autonomy than other health plans, they have higher premiums. As with most other insurance plans, members are responsible for meeting the deductible before the plan starts to cover medical expenses.

As the preferred health insurance for almost half of U.S. workers, PPOs have unique advantages and drawbacks. Here are some of the pros and cons to guide your decision-making.

• Enhanced Flexibility: PPOs provide unmatched flexibility by eliminating the need to choose a primary care provider (PCP). Unlike with HMOs, you can consult specialists directly and enjoy partial coverage for out-of-network care, expanding your health care options.

• No Referral Requirement: PPOs empower you by eliminating the mandatory PCP referral system. Without a designated doctor managing your overall care, there's no need for approval when seeking services from various health care providers.

• Expanded Service Options: Enjoy a comprehensive array of services like chiropractic and acupuncture with certain PPOs, extending coverage beyond standard check-ups.

• Portability and Travel Coverage: Whether you're on the road or in another state, PPOs ensure continuous coverage, allowing you to see doctors and specialists outside your local network.

• Higher Premiums: PPO health insurance often comes with higher premiums than other plans. If you're in good health and visit the doctor infrequently, you might be better off exploring more cost-effective options.

• Potential Paperwork Burden: If you regularly consult out-of-network providers, managing paperwork like submitting claim forms can become time consuming and potentially frustrating.

• Coordination Responsibility: Consulting doctors and specialists without referrals means taking on the responsibility of coordinating your care. In contrast, HMOs and certain other plans appoint your PCP to coordinate and manage your care.

Each health insurance plan type — including PPO, HMO, EPO and POS — varies in terms of network size, out-of-network coverage, referral requirements and premiums. Understanding these features from a high level is a good starting point.

PPO vs. HMO

PPO plans are more expensive than HMO plans but offer greater flexibility, allowing you to seek care out-of-network without referrals. While less expensive, HMO plans limit you to in-network providers and require referrals for specialists.

PPO vs. EPO

EPO plans generally have lower premiums and out-of-pocket costs than PPOs. However, they restrict coverage to in-network providers, reducing flexibility in choosing care.

PPO vs. POS

POS plans combine elements of both PPO and HMO plans, offering some coverage for out-of-network but requiring referrals for specialist visits.

PPOs use a cost-sharing model whereby the insurer covers a portion of health care costs after the policyholder meets the policy deductible. In-network providers offer discounted rates, but PPO plans also offer coverage for out-of-network care, although this comes with higher out-of-pocket costs. Some services require prior authorization to control costs and avoid unnecessary procedures. Here are the main features of PPO plans:

When you seek medical care within the PPO network — comprising doctors, hospitals and facilities that have agreements with the insurance provider — your health insurance company covers a portion of the costs once you've met your deductible. You pay the remaining amount. This shared cost arrangement is known as cost sharing. The following expenses are part of the cost sharing structure:

• Deductibles: You must meet your deductible before your insurance kicks in, expect for services where the deductible is waived. PPO plans often have a separate, higher deductible for out-of-network services.
• Co-insurance: After meeting the deductible, you and the insurance company share the costs, depending on your plan. If your plan has 20% co-insurance, you pay 20% of the covered expenses, and the plan covers the remaining 80%.
• Copay: Fixed amounts for specific services that are paid at the time of service. For example, you might pay $30 for a doctor's visit or $20 for prescription drugs.

PPOs encourage the use of in-network providers by imposing higher deductibles and copays/co-insurance for out-of-network services. For instance, you might have a $40 copay for an in-network health care provider visit but 50% co-insurance for an out-of-network provider visit, making in-network care more financially favorable.

In-network health care providers agree to accept a predetermined, discounted rate for their services. This results in lower out-of-pocket costs for plan participants. Out-of-network services are still covered in PPO plans but at a higher cost to you.

For instance, let's say you require an MRI, and this is your first health expense of the year. Your in-network deductible is $1,000, your out-of-network deductible is $3,000, and your co-insurance is 40%. If you choose an in-network facility, the MRI may cost $1,500 with your plan's discounted rate, so you would be responsible for the first $1,000 to meet your deductible as well as 40% of the remaining balance ($500) for a total of $1,200.

On the other hand, if you opt for an out-of-network provider, you will not be able to take advantage of a plan discount. The MRI may cost $2,000, and you will be responsible for the entire amount as you will not yet have hit your out-of-network deductible of $3,000.

PPOs generally have larger networks than other plan types, making it easier to stay in network and enjoy lower costs.

Prior Authorization

Prior authorization involves seeking approval from the insurance company before undergoing certain nonemergency medical services, like expensive tests, procedures or treatments. This helps the plan control costs and prevent unnecessary or overly expensive medical procedures.

No PCP Requirement

Unlike HMOs, PPOs don't mandate a primary care physician (PCP). Participants have the freedom to consult specialists directly without a referral. However, prior authorization may still be necessary in certain situations.

MoneyGeek addressed the most commonly asked questions about PPO plans to help you learn more about them.