If you know someone who has health insurance through their employer, there’s a good chance their group plan is a preferred provider organization (PPO) plan.
After all, the Kaiser Family Foundation1 (KFF) found that out of roughly 155 million Americans that are covered under an employer-sponsored health plan, 46% of them are covered by a (PPO) plan.While a PPO is a popular type of health plan in the U.S., it can come with some drawbacks. In this article, we’ll look at a few pros and cons of the PPO plan so you can determine if it’s right for you.
Read our guide about an alternative to traditional group health insurance—the HRA
What is a preferred provider organization (PPO) plan?
A PPO plan is a type of health insurance plan that contracts with primary and specialty physicians, other healthcare professionals, and facilities to create a network of participating or “preferred” providers.
Participating network physicians, medical professionals, and healthcare facilities—known as in-network providers—partner with health insurance companies to provide healthcare to plan participants at an agreed-upon reduced rate. In-network providers are given to enrollees on a “preferred provider list.”
When employees obtain care from an in-network provider, the insurance company pays the provider the full agreed-upon reduced rate, and the employees cover any copay or deductible.
While receiving out-of-network care is possible with a PPO plan, employees covered under the plan must get network care for their medical claims to be paid at the highest level.
Pros of a preferred provider organization (PPO) plan
Let’s start with the good news—there are several advantages to having a PPO plan that makes getting care a convenient experience.
Freedom of choice
Given that PPO plans offer a larger network of doctors and hospitals for you to choose from, you have a lot of say in where you get your care and from whom. Any doctor and healthcare facility within your insurance company’s network all offer the same in-network price.
Moreover, you don’t have to commit to a single primary care physician. This is especially convenient if you travel frequently and aren’t able to consistently see the same doctor every time you’re due for an appointment.
No referrals needed
Another benefit of not being locked in with one primary care doctor is that you don’t need a referral to see a specialist. Other plans, such as the health maintenance organization (HMO) plan, would require you first set up an appointment with your primary care physician, who would then write you a referral to see a specialist.
Skipping this step of requesting a referral from a primary care physician saves you the time and money you would spend on the extra appointment, and gets you to the specialized care you need that much faster.
While it’s recommended that you seek care from a doctor or hospital within your network, you can still get care accessed outside of your network partially covered. You’ll just have to pay more additional out-of-pocket costs than you would if you had gotten care from one of the preferred providers.
Other health plans, such as the HMO plan, strictly require that you only get care from medical providers within your plan network, which means you wouldn’t be able to get any portion of your care covered if you’re out-of-network. The only exception is in the case of necessary emergency care.
Cons of a preferred provider organization (PPO) plan
Now it’s time for the not-so-good news. Before enrolling in a PPO plan, you’ll want to consider a few disadvantages that may make getting care slightly more costly.
Higher monthly premium costs
PPO plans are typically more expensive than other plan types. Not only will your plan premium be higher, but you'll also have to meet your annual deductible before your insurance company kicks in their share.
Data from the KFF finds that covered workers enrolled in PPO plans have higher average premiums for both single and family coverage than the overall average premiums.
The average annual plan premium cost for a single PPO plan in 2021 is $7,731 and $22,221 for a family plan1. For comparison, an HMO plan has lower averages of $7,016 for a single plan and $20,809 for a family plan.
You will also have to pay more out-of-pocket costs if you visit an out-of-network provider who isn’t part of your plan’s network.
With a PPO plan, you’ll have an annual deductible, representing the money you’ll have to pay out of pocket before your insurance covers anything. Insure2 found that deductibles can range from $1,700 to $3,400 for high deductible health plans.
For example, let’s say you have a PPO plan with a $2,000 network deductible. If you break your arm in January and your medical bills total $850, you would have to pay the full $850 out of pocket because you haven’t paid $2,000 worth of health insurance costs that year yet.
When you visit a network doctor, hospital, or specialist, your healthcare provider files your claim paperwork on your behalf and provides your insurance company with any necessary information to process the claim.
However, if you receive out-of-network care, you’re responsible for filing the claim documentation yourself. This process can be tricky or confusing if you’re not used to the process, particularly if you have several doctor visits at one time, such as if you’re treating a chronic medical issue.
Is a PPO plan right for you?
If you’re considering a PPO plan, you should weigh its pros and cons carefully. For example, if you or your dependents require medical services from a network specialist or regular hospital care, the flexibility of a PPO might be the best option.
However, if budget is your biggest concern, an HMO plan will typically have a lower monthly premium and lower out-of-pocket costs. But you should investigate the network of providers in your area under that plan to ensure you’re covered.
A PPO plan could be right for you if you have the budget and need more choices from your health insurance plan. Just make sure you look at all your options first before moving forward with a decision.
Choosing the right health insurance can significantly impact the cost and quality of your medical care. That’s why understanding all your health insurance options, including their pluses and minuses, is an essential first step for you and your family.
PPOs may cost more than other health plans, but the greater expense can come with greater network benefits. If you’re given the option to choose the type of traditional group health plan you’ve covered under and want a plan that gives you more flexibility, a PPO plan is an excellent option to get the care you need.
This article was originally published on March 31, 2021. It was last updated on September 28, 2022.