What is a Preferred Supplier Organization (PPO)?
A Preferred Provider Organization (PPO) is a medical care arrangement in which professionals and medical facilities provide services to subscribed customers at reduced rates. PPO medical and health care providers are called preferred providers.
Key points to remember
- PPO medical and health care providers are called preferred providers.
- Choosing between a PPO and an HMO generally involves weighing your desire for greater accessibility to doctors and services compared to the cost of the plan.
- PPO plans are more comprehensive in their coverage and offer a wider range of providers than HMO plans, but have a higher cost.
How a Preferred Supplier Organization (PPO) works
Most health insurance plans are managed by a Preferred Provider Organization (PPO) or a Health Maintenance Organization (HMO). A PPO is a managed care organization made up of health care professionals and institutions such as general and specialist physicians, hospitals and other health professionals. These professionals conclude a contract with the insurance company to provide subscribed participants with services at an agreed reduced rate. In exchange for reduced rates, insurers pay the PPO a fee to access the network of providers.
Suppliers and insurers negotiate rates and schedules for services. PPO participants are free to use the services of any provider on their network. Out-of-network care is available, but it costs the insured more. A reasonable and customary fee schedule is used for off-network claims. If these claims exceed the reasonable and customary costs for the services rendered, the cover may not apply or, more often than not, the additional costs will be borne by the patient. PPO subscribers generally pay a co-payment per supplier visit, or they must meet a deductible before insurance covers or pays the claim.
PPO plans tend to charge higher premiums because they are more expensive to administer and manage. However, they offer more flexibility compared to alternative plans. PPO networks are extensive, with suppliers in many cities and states. Flexibility in choosing a supplier or access to a supplier in emergency situations offers value to participants.
PPO vs HMO
Unlike PPOs, HMO plans require participants to receive health services from a designated provider – a primary care physician who coordinates the care of the insured. Both programs allow the insured to request specialized care. However, as part of an HMO plan, the designated primary care physician must provide a referral to a specialist.
PPO plans charge higher premiums than HMOs for the convenience, accessibility and freedom that PPOs offer, such as a greater choice of hospitals and doctors. Plans with the lowest / lowest personal expenses, such as those with low deductibles and low co-payments, have higher premiums. The high cost of premiums is due to the fact that the insurer absorbs more of the associated costs. Conversely, lower premium alternatives result in higher reimbursable costs for the insured and lower costs for the insurer.
Some participants prefer HMO plans for their affordability, although the services and freedoms generally associated with PPO plans are often limited.
PPO plans are also more comprehensive in terms of coverage, including many services that other managed care programs might exclude or for which they would charge an additional premium.
Historically, PPO plans have been the preferred choice of participants from employer groups. However, today, participants want more options for managed health care. Therefore, many groups also offer HMO plans. Because HMO premiums are cheaper, some participants prefer HMO plans for their affordability, although the services and freedoms typically associated with PPO plans are often limited.