The two most common types of Medicare Advantage plan are Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans. These plans differ in their flexibility around seeking medical care.
Medicare provides healthcare coverage for individuals aged 65 years and above.
Some private health insurers offer a bundled plan called Medicare Advantage, or Medicare Part C, that often combines coverage for hospital, medical, and prescription drugs. Most Medicare Advantage plans also include benefits that original Medicare does not offer.
Understanding the different Medicare Advantage plans available can make managing one’s healthcare needs easier.
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 is a type of Medicare Advantage plan. It has a network of clinics, hospitals, and doctors that have agreed to provide quality standards of care at lower costs. A person must use in-network services for the plan to cover their costs.
Usually, HMO plans require an individual to select a primary care physician (PCP) who will coordinate their care. The plans also generally require the PCP to make specialist referrals.
PPO plans share many features with HMO plans. However, PPO plans offer greater flexibility.
As with HMO plans, there is a network of Medicare-preferred healthcare service providers that offer lower cost options, but individuals are free to choose a doctor, specialist, or hospital that is not part of the network. However, this may cost more.
A person with a PPO plan does not need to choose a PCP, and they can request services from any in- or out-of-network healthcare professional without getting a referral from their doctor.
The table below offers a summary of information for Medicare Advantage HMO and PPO plans.
Both plan types use a network of healthcare services. The main difference between them is the way the insured person can use those networks.
|Network of healthcare service providers
|Requires referral to see a specialist
|Yes, but at a higher cost
|Includes prescription drug coverage
|Nonemergency out-of-network benefits
Both plans have a network of healthcare service providers that have agreed to deliver lower cost care.
A person must usually pay for all out-of-network services they receive if they have an HMO plan. Although PPO plans offer more freedom, out-of-network costs may be higher.
HMO plans require a person to choose a PCP to look after their overall health and refer them for specialist tests and services. A PPO plan does not require this.
Most HMO and PPO plans cover prescription medications. If they do not, individuals cannot enroll in the standalone Medicare Part D prescription drug plan. Instead, they will need to either change to or choose a plan that has their desired level of prescription drug coverage.
Additionally, if a person enrolls in a prescription drug plan while part of an HMO or PPO plan, they may be automatically disenrolled and returned to an original Medicare plan.
HMO and PPO plan networks
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 their network, they will have to pay higher costs. The plan benefits will not usually apply.
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. Any copayments, deductibles, or coinsurance will apply.
If the same person chooses an out-of-network dermatologist, they must self-fund the fees for the visit.
If a person needs to see several specialists and wants the freedom of using any healthcare service provider they choose, a PPO plan offers this option. However, out-of-network providers can still cost more than in-network providers on a PPO plan.
For example, if a person had a PPO plan, they could visit a dermatologist without first seeing their PCP. If the dermatologist is an in-network specialist, the insurance plan will cover the cost.
However, if the dermatologist is out of network, an individual will usually pay for the service upfront and then submit a claim. Reimbursement will usually be up to the Medicare-approved amount. Deductibles, copayments, and coinsurance will apply.
PCPs for HMO and PPO plans
HMO plans require a person to choose a PCP to coordinate their care and refer them to in-network specialist services when needed. Without a referral, a specialist could charge more than the Medicare-approved amount that a person would have to pay out of pocket.
Some routine health services, such as yearly screening mammograms and Pap smears, do not need a referral.
PPO plans do not require a person to choose a PCP.
Out-of-network coverage in HMO and PPO plans
Out-of-network coverage may be limited or more costly in both HMO and PPO plans.
According to the Kaiser Family Foundation, the 2019 average out-of-pocket limit for in-network services was $5,059 for both HMO and PPO plans and $8,818 for out-of-network services on PPO plans.
Both plans will typically cover out-of-network emergency care, urgent care, and out-of-area dialysis.
Costs of HMO and PPO plans
Private insurance companies administer HMO and PPO plans, which means that the costs can vary among different providers, plan types, and insured individuals.
The insured person usually pays a monthly premium for either the HMO or the PPO plan. Some plans are zero-premium, but a person will usually have higher deductibles, coinsurance, or copayments in these cases.
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.
Out-of-pocket expenses, such as coinsurance or deductibles, will usually apply to both plan types. If an individual chooses to receive out-of-network services, they will generally pay more.
People who are considering an HMO or PPO plan should read all documentation carefully to confirm their healthcare insurance costs. Depending on where they live, some people may find that Medicare Advantage HMO and PPO plans are more cost effective than original Medicare.
Eligibility for HMO and PPO plans
The area in which a person lives can affect their eligibility due to an HMO plan’s in-network healthcare service provider requirement. Urban areas have the most healthcare facilities, so those who live in areas with lower populations may have limited plan choices.
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.
Specific medical conditions can also affect eligibility for Medicare Advantage HMO and PPO plans. In the past, for example, people with end stage renal disease (ESRD) typically could not enroll in a Medicare Advantage plan. However, as of January 1, 2021, this is no longer true, and a person with ESRD can now enroll in a Medicare Advantage plan of their choosing.
An individual can enter their ZIP code into Medicare’s plan finder to find HMO and PPO plans in their area.
The following table shows some of the advantages and disadvantages of each plan type.
|No or low deductible
|Smaller choice of healthcare service providers
|Larger choice of healthcare service providers
|Might not be available in some locations
|Widely available in most locations
|No upfront payment and no need to file claims if a person uses an in-network service
|May require upfront payment, followed by a claim, primarily if a person uses an out-of-network service
|Plan may require a person to change their PCP if they are not in the network
|Person can keep their current PCP, even if they are not in the network
An HMO Point-of-Service (HMO-POS) plan is a managed care plan that combines both HMO and PPO plans.
As with an HMO plan, an individual must choose a PCP, but they can use out-of-network services at a higher cost, similarly to a PPO plan.
The plan may require prior authorization for some healthcare services, meaning that a person must confirm coverage of intended treatment ahead of time. Medicare then produces a document stating that it will cover the services in line with the plan benefits and limits.
The POS portion and HMO parts of the plan have separate deductibles.
Medicare Advantage plans include HMO and PPO plans. They are an alternative to original Medicare, and policies can provide services that original Medicare does not cover.
Each type of plan has advantages and disadvantages. A person should consider which plan type would be best for their needs, location, and budget when looking for an HMO or PPO plan.