Overview
PPO stands for Preferred Provider Organization. PPO plans are one of the most popular types of health insurance plans. PPO plans use networks of providers (in-network benefits), but you may also seek care from providers outside of the network. The hallmark provision of PPO plans allows you visit any healthcare provider you wish without needing to get a referral from a primary care physician.
What is a Network?
PPO plans operate based on a network of providers who have contracted with the plan. These providers are known as PPO providers, in-network providers, contracted providers, or simply network providers. The PPO network is comprised of all providers who have entered into a contract with the insurance carrier to provide care to plan members at negotiated, discounted rates.
How does a PPO plan work?
PPO plans offer you the freedom to receive care from any provider, in network or out of network. This means you can see any doctor or specialist, or use any hospital. In addition, PPO plans do not require you to choose a primary care physician (PCP) and do not require that you get a referral to see a specialist.
That said, most PPO plans are set up with financial incentives to encourage use of in-network providers. In-network healthcare services are covered at a higher benefit level than out-of-network services. More importantly, when care is received from in-network providers, you never have to worry about “excess” expenses because PPO providers have agreed to accept their contracted fees as payment in full.
Non-network providers are bound by no such requirements, and they may balance bill you for any portion of their bill that is not reimbursed by the insurer. So when you use in-network providers, you will pay less out of pocket. It's important to check if your provider is in your plan’s provider network so you can receive the highest level of benefit coverage.
PPO Plan Terms
Deductible. Most PPO plans have an annual deductible to pay before the insurance company starts covering your medical bills. Be aware that most contracts have separate deductibles for in-network care and for out-of-network care.
Coinsurance. After your deductible is satisfied, the insurance carrier will share payment for your medical expenses. This is called coinsurance and typically is expressed as a percentage of the negotiated bill for in-network providers. Coinsurance levels are commonly 90% or 80% for in-network benefits and 70%-50% for out-of-network providers.
Copayments. You may also have a copayment (sometimes known as a copay) of approximately $20 - $50 for office visits or prescription drugs. Copayments only apply for in-network providers.
Out-of-Pocket Maximum. All health plans have what is called an Out-of-Pocket Maximum. This is the maximum amount that you will personally pay for services during the calendar year. If you add up your deductible and coinsurance share, plus all your copayments, once you reach the stated out of pocket maximum, the insurance company will pay 100% for covered services for the remainder of the calendar year. Bear in mind that your contract will have separate out of-pocket maximums for in-network benefits and out-of-network benefits.
Cost Sharing Under a PPO Plan
The cost sharing structure of PPO plans provides incentives for plan members to seek care from in-network providers. This means that you will pay less out of pocket if you choose to see a network provider (but you are still able to seek care outside the network, if you choose). It is important to make sure you clearly understand the plan provisions for out of network care as many contracts provide significantly increased cost sharing provisions for out of network care.
Costs
A PPO health insurance plan provides more choices when it comes to your healthcare, but there are typically higher out-of-pocket costs associated with these PPO plans (compared to HMO plans). This includes your annual deductible, copays, and coinsurance expenses. To help reduce costs, remember that using in-network providers who are a part of your PPO network will save you money.
Your monthly premiums will be often higher as well. This is because the choice and flexibility provided under a PPO plan create a higher cost plan.