Navigating insurance jargon can give even the most insurance savvy of us a headache. In a recent study it was discovered that a majority of Americans today do not understand basic insurance terminology. Words like “co-pay” and “deductible” have some of us pulling up our Google search engines, and the long list of insurance acronyms can make anyone want to just give up.

While it’s important to educate yourself on all insurance lingo, there are two acronyms that are especially important you understand: HMO and PPO.

What is an HMO?

HMO is an abbreviation for Health Maintenance Organization. Under this plan, you have access to a network of doctors and medical services established by an insurance carrier.

The doctors and medical service providers will agree with the insurance carrier to offer healthcare services to policyholders at agreed upon prices.

Policyholders pay lower premiums under an HMO plan, but this comes at the cost of certain restrictions.

Limitations of HMO

Policyholders receive benefits only if they use the services of doctors and hospitals included in the network. They must pay from their own pockets for medical services that are not part of the network.

Under an HMO, you must choose a primary care physician – or PCP – who will be the first person you see for any health concerns. The PCP will determine the healthcare services that you can use. All major decisions in regards to your medical health will be made by the PCP. If you need to visit a specialist, then you must first obtain a referral from your PCP.

What is a PPO?

PPO is an abbreviation for preferred provider organization. PPOs offer greater flexibility as compared to HMOs. You will not be assigned a PCP and you will not need a PCP referral if you require the care of a specialist.

You can also get limited coverage if you seek medical care outside of your network.

Limitations of PPO

Although PPOs offer greater flexibility, the costs of such plans are also higher. You may need to pay a greater amount of deductible and premium.   

For medical services beyond your network, you will not receive the same level of benefits as you would for medical services within your own network.

Medical Record

Another difference between PPOs and HMOs is the way your medical record is treated.

With an HMO plan, your medical record is kept in a centralized database from where it can be easily transferred to other doctors within the network. Under a PPO plan, your medical record is not kept in a centralized database, so it may take longer for your record to be transferred to another doctor in the same network.

You can decide between HMO and PPO plans based on the level of flexibility you desire. HMO plans tend to be affordable, but they offer less freedom. On the other hand, PPO plans can be more expensive, but they offer greater freedom.