Preferred provider organization (PPO)

What is a preferred provider organization (PPO)?

A preferred provider organization (PPO) plan is a form of health insurance. Under a PPO plan, users have more flexibility in choosing medical providers than under a health maintenance organization (HMO) plan, at the cost of higher monthly premiums. Insurance coverage is available for providers outside of the insurance plan network, with higher deductibles and other costs.

Deeper definition

A PPO is a managed care organization grouping doctors, hospitals and other medical care providers who have agreed with an insurer or a third-party administrator to provide services at reduced rates. Under a PPO, users may chose care providers from inside the network and also obtain insurance coverage for medical specialists that are outside the network, but with a smaller portion of the costs reimbursed by the plan.

In contrast to the added flexibility that a PPO affords you, it does not cover as much as other types of insurance plans. Sometimes the covered amount is as low as 60 percent of an emergency room visit, for example. When choosing a PPO plan, make sure you are OK with the coverage amounts.

Employers may offer PPO plans as part of their medical benefits for their workers, and retirees can opt for PPO plans as part of their Medicare coverage. Before signing up for a PPO, you’ll also want to consider other types of plans and compare the benefits with what you need.

The main difference between a PPO and an HMO is that an HMO requires you to have a primary care physician who coordinates your care while a PPO does not. A provider sponsored organization (PSO) operates much like an HMO, but allows for out-of-network care. The biggest difference between a PPO and PSO is that a PSO requires you to get a referral from your primary care physician to use someone outside your plan’s network. A PSO generally costs less than a PPO plan.

An exclusive provider organization, or EPO, combines the lower cost of an HMO with some of the benefits of a PPO, such as not having to choose a primary care physician. Unlike a PPO, an EPO does not allow you to see someone out of the plan’s network.

Preferred provider organization (PPO) example

PPO insurance plans are popular because of their flexibility. You are encouraged to choose in-network doctors and other providers, but you don’t have to. In-network services, however, are covered at a higher benefit level. A PPO generally has a higher monthly premium, but it can be a good choice for those who want the freedom to choose almost any doctor or medical facility they want.