Both HMOs and PPOs save healthcare consumers money by creating networks of medical service providers who agree to discount care that is provided to members of the respective plan.

The primary way these two plans differ is in how they administer care and the degree to which members have freedom in terms of from whom they decide to obtain care. Under the varying plans, out-of-pocket costs can also differ, as can preventive care coverage and network size.

Health Maintenance Organizations, or HMOs, offer many advantages to their members. HMOs do not require members to pay sizable out-of-pocket expenses for such items as: co-pays and deductibles, and they usually provide significant coverage for preventive care. However, in order to enjoy the low costs and comprehensive coverage provided by an HMO, members are locked-in to the idea that they may only obtain care from in-service network providers. In most cases, care is administered by a Primary Care Physician who coordinates the member’s care and provides referrals to in-service network specialists, as needed.

Preferred Provider Organizations, or PPOs, offer more varied choices – Whereas, PPO networks tend to be large, members typically are free to obtain care from any member provider without having to first obtain a referral. However, as with HMOs, if PPO members receive care from an out-of-service network provider, they will have to assume responsibility for a larger portion of the cost. PPOs also normally have higher out-of-pockets costs, e.g., deductibles and co-pays in contrast with HMOs.