Medicare is a government program that provides healthcare coverage for individuals aged 65 years and older. Some private insurers offer a bundled plan called Medicare Advantage, or Medicare Part C that often combines coverage for hospital, medical, and prescription drugs.
The two most common types of Advantage plans are Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans. These plans differ in their flexibility around seeking care from a fixed network of doctors.
HMO plans also require a referral when a person needs to visit a specialist and may cost less due to their more restrictive requirements on staying in-network.
Understanding these different Medicare Advantage plans can make managing future healthcare treatments easier.
This article investigates HMO and PPO plans, including their likely costs, coverage levels, and the advantages and disadvantages of each type of policy.
We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:
- Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
- Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
- Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
An HMO plan covers medical expenses from a fixed network of doctors, specialists, clinics, and hospitals. The healthcare providers in the network have a contract with Medicare to provide the insured person with services at a lower cost.
With an HMO plan, a person must choose a primary care physician as their first point of contact.
The doctor will assess the insured person’s healthcare needs, confirm that they require specialized care, and help them access a suitable doctor in the network.
The doctor will make a referral on behalf of the insured person if they need to consult a specialist. This ensures the person receives coordinated care. Without a referral, the specialist could charge the full price.
Some routine health services, such as yearly screening mammograms and Pap smears, do not need a referral.
However, getting a referral does not mean that the policy will always cover or contribute to specialist fees and medical services. Some people may have to meet out-of-pocket expenses, such as coinsurance or deductible.
If an individual chooses to receive healthcare from a professional who is not part of the network, they will have to pay more.
An HMO plan also covers emergency care, urgent care, and out-of-area dialysis.
Does an HMO cover prescription drugs?
Most HMO plans cover prescription medicines as part of a Medicare Advantage Prescription Drug plan.
It is best to confirm the level of coverage with the plan provider directly.
Individuals cannot enroll in Medicare Part D, which covers prescription drugs if their HMO plan does not include prescription drug coverage.
PPO plans share many features with HMO plans. However, the PPO plan offers greater flexibility.
As with HMO plans, there is a network of ‘preferred’ healthcare service providers that offer lower-cost options.
Individuals are free to choose a doctor, specialist, or hospital that is not part of the network. However, it may cost more.
A person who has a PPO plan does not need to choose a primary care doctor.
The insured person can request treatment from any in-network or out-of-network health care professional without a referral from their doctor.
Does a PPO cover prescription drugs?
Most PPO plans cover the cost of prescription drugs, although some do not. If an individual wants Medicare Prescription Drug coverage, they need to join a PPO plan that includes it.
As with the HMO policies, the insured cannot join the Medicare Prescription Drug Plan if their PPO plan does not include prescription drug coverage.
The table below shows a summary of information for Medicare Advantage PPO and HMO plans.
Both plans use a network of healthcare services. The main difference between them is the way the insured person can use those networks.
|Network of healthcare providers||Yes||Yes|
|Requires primary care physician||Yes||No|
|Requires referral to see a specialist||Yes||No|
|Out-of-network coverage||No||Yes, but at a higher cost|
|Includes prescription drug coverage||Usually||Usually|
|Non-emergency out-of-network benefits||No||Yes|
The following table shows some of the advantages and disadvantages of each plan.
|Lower premiums||Higher premiums|
|No or low deductible||Deductible varies|
|More restricted||More flexible|
|More managed||Less managed|
|Small network of providers||Large network of providers|
|The plan might not be available in some locations||The plan is widely available |
in most locations
|There is no upfront payment and no need to file claims if a person uses an in-network service||Up-front payment is necessary, followed by a claim, especially if a person uses an out-of-network service.|
|An HMO plan may require that an insured person changes their primary care physician if they are not in the network.||The insured person can keep their current primary care physician, even if they are not in the network|
Using in-network services is the lowest-cost option on both plans. HMO plans offer coordinated care with full coverage inside the network.
If a person wants to use a service outside of the network, they will not have coverage and will have to pay higher costs.
If a person needs to see several specialists and wants the freedom of using any healthcare service they choose, a PPO offers these options.
However, out-of-network providers still cost more than in-network providers on a PPO plan.
For example, if a person has an HMO plan and wants to see a dermatologist, their doctor must write them a referral to see an in-network dermatologist, but the insurance covers the visit.
If the same person chooses an out-of-network dermatologist, they would have to self-fund the fees for the visit.
If the person had a PPO, they could visit the dermatologist without first seeing their doctor. If the dermatologist is an in-network specialist, the insurance plan covers the cost.
However, if the dermatologist is out-of-network, the insured person would usually have to pay for the services upfront and then claim it back. The reimbursement amount depends on insurance coverage, copay, and coinsurance.
A point-of-service plan (POS) is a managed care plan that combines both HMO and PPO plans.
As with an HMO, individuals must choose a primary care physician, but the insured can use out-of-network services at a higher cost, similarly to a PPO.
The plan may require pre-authorization for these services. Pre-authorization means that a person has to confirm coverage ahead of time, and Medicare produces a document stating that they will cover the services up to a certain amount.
The POS portion and HMO parts of the plan have separate deductibles.
Private insurance companies provide HMO and PPO plans, which means the costs can vary between different providers, types of plans, and insured individuals.
Other factors can also affect how much a policy costs, such as annual income and the number of months for which a person paid Medicare taxes.
The insured person usually pays a monthly premium for either the HMO or the PPO plan, although some plans have no premium.
When there is no premium, a person will have higher out-of-pocket costs or premiums for other parts, such as Part B. Some Medicare Advantage policies cover the entire Part B premium. Others only account for some of it.
The plans have different thresholds for out-of-pocket expenses before they cover healthcare services. In 2021, the government set the maximum out-of-pocket limit for all Medicare Advantage Plans at $7,550. However, individual plans could set lower limits.
According to the Kaiser Family Foundation, the average out-of-pocket limit for in-network services is $5,059 for both HMO and PPO plans and $8,818 for out-of-network services on PPO plans.
People considering an HMO or PPO policy should read all documentation carefully to confirm what their healthcare will cost. Depending on where they live, some people find that Medicare Advantage HMO and PPO plans are more economical than Original Medicare.
The area in which a person lives can affect eligibility because HMO plans restrict the insured person to a network of providers and the geographic area affects coverage. Urban areas have the most providers. People who live in areas with lower populations could find it challenging to find a plan.
With a PPO plan, the insured person does not need to use health services within a specific network. Therefore, these plans are available in most regions.
The Medicare website has a searchable database of HMO and PPO plans. Enter a zip code to see the plans available in your area.
Specific medical conditions can also affect eligibility for Medicare Advantage HMO and PPO plans. People with End-Stage Renal Disease (ESRD) typically cannot enroll in a Medicare Advantage Plan.
A person may be able to enroll in a Medicare Advantage Special Needs Plan (SNP). People should check their plan to see what it covers.
Medicare Advantage plans include HMO and PPO plans. They are an alternative to traditional Medicare. These policies can provide services that Original Medicare does not cover.
Each type of plan has advantages and disadvantages. A person should consider which plan would be best for their particular circumstances, location, and budget when selecting an HMO or PPO plan.
We will update the 2021 costs as soon as possible after the Centers for Medicare and Medicaid Services (CMS) have released them.
We last updated the costs on this page on October 13, 2020.