Originally published August 7, 2023. Updated March 31, 2026.
Choosing between an HMO and a PPO comes down to one trade-off: cost vs. flexibility.
HMOs (Health Maintenance Organizations) tend to have lower premiums and require you to stay within a defined provider network. PPOs (Preferred Provider Organizations) cost more but give you freedom to see specialists and out-of-network providers without a referral.
Here's how each plan works and what to consider when choosing between them.
What is an HMO health insurance plan?
An HMO (Health Maintenance Organization) is a type of health insurance plan that covers care from a defined network of doctors and facilities. Members choose a primary care physician (PCP) who coordinates their care and provides referrals to specialists. Out-of-network care is generally not covered except in emergencies.
In-network care only: HMOs only cover medical services provided by doctors and healthcare facilities within their network. Seeking care outside of this network will result in the patient being responsible for the entire bill, except for emergencies.
Referrals required for specialist visits: Before seeing a specialist, HMO enrollees must obtain a referral from their Primary Care Physician (PCP). This process ensures specialist visits are medically necessary.
Coverage tied to a service area: HMO plans often operate within specific geographic areas, requiring enrollees to live or work within those regions to be eligible for coverage.
Lower upfront costs: HMOs have a low or no annual deductible, allowing patients to access healthcare services without significant upfront costs.
What is a PPO health insurance plan?
A PPO (Preferred Provider Organization) is a health insurance plan that gives members access to a broad network of providers and partial coverage for out-of-network care. PPOs do not require a primary care physician or referrals to see specialists. They provide the following advantages:
Larger provider network: PPO plans offer access to a broader network of healthcare providers, allowing patients to choose from a larger pool of doctors and specialists.
See specialists without a referral: Unlike HMOs, PPO enrollees do not need a referral from their PCP to visit a specialist. They have the freedom to see the specialists they need directly.
Some out-of-network coverage: PPO plans typically cover out-of-network providers, albeit at a lower rate. This feature can be beneficial for those who have established relationships with specific doctors.
Higher premiums and deductibles: PPOs generally have higher deductibles compared to HMOs. This is because enrollees are paying for the increased flexibility and access to a larger provider network.
HMO vs PPO: How to choose
The right plan depends on your priorities. Ask yourself:
Do you want lower monthly costs? An HMO is likely the better fit.
Do you have existing specialists or doctors you want to keep? A PPO gives you more flexibility to stay with them.
Do you travel frequently or live in multiple states? A PPO's broader network is an advantage.
Are you generally healthy and comfortable staying in-network? An HMO can save you money without sacrificing care.
Both HMOs and PPOs can be structured as High Deductible Health Plans (HDHPs). HDHPs pair with a Health Savings Account (HSA), which lets you set aside pre-tax dollars for medical expenses. This can be a cost-effective option if you're in good health and want to reduce your monthly premium.
The bottom line
HMOs and PPOs both provide solid coverage. HMOs keep costs low by limiting your network and requiring referrals. PPOs offer more flexibility in exchange for higher premiums.
For employers choosing between plans to offer employees, the choice often comes down to workforce demographics and budget. Employees who rarely use specialist care may prefer the savings of an HMO. Those with ongoing health needs or established care relationships often value a PPO's flexibility.
If you're exploring ways to give employees more choice in their health coverage, an Individual Coverage HRA (ICHRA) lets your team members pick their own plan type.
