What is PPO insurance? Pros and cons

If someone has health insurance through their employer, also known as group health insurance, there’s a good chance their policy is a preferred provider organization (PPO) plan. Even if they don’t have group coverage, it’s likely their policy is a PPO plan.

PPOs are the most common type of health plan available. KFF¹ found that 46% of the roughly 153 million Americans with employer-sponsored health coverage had a PPO policy. While a PPO is a popular type of plan with many advantages, it can come with some drawbacks that you must consider if you’re shopping for a new policy during the annual open enrollment period or a special enrollment period.

In this article, we’ll examine the pros and cons of PPO plans so you can determine if it’s right for you.

Takeaways from this blog post:

• PPO insurance plans allow plan participants to choose from a larger network of doctors and hospitals without needing a referral to see a specialist.
• While PPO plans allow for out-of-network care, they tend to have higher monthly premium costs and annual deductibles than other types of health insurance plans.
• Filing insurance claims with a PPO plan is often more manageable when you receive in-network care but can be more challenging if you need out-of-network services.

What is a preferred provider organization (PPO) plan?

A PPO plan is a type of health insurance policy that contracts with primary and specialty physicians, other healthcare professionals, and facilities to create a network of participating or “preferred” providers.

With a PPO, participating network physicians, medical professionals, and healthcare facilities—known as in-network providers—partner with a health insurance company to provide individuals with healthcare services for an agreed-upon reduced rate. The insurer gives plan participants a provider directory, also called a “preferred provider list,” of in-network providers when they enroll in their plan.

When an individual obtains care from an in-network provider, the insurance company pays the provider the total agreed-upon reduced rate, and the individual covers any copays or deductibles.

While receiving out-of-network care is possible with a PPO plan, plan participants must get in-network care if they want their insurance provider to pay their medical claims 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. Let’s check out some key features of this type of policy in the sections below.

Freedom of choice

One of the biggest advantages of PPO policies is their flexibility. Given that PPO plans offer a larger network of doctors and hospitals, you have a lot of say in where and from whom you get your care. Any doctor and healthcare facility within your insurance company’s network offers the same in-network price.

Moreover, you don’t have to commit to a single primary care provider. 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 plan participants don’t need a referral to see a specialist. Other plans, such as the health maintenance organization (HMO) or point of service (POS) plans, require you to schedule an appointment with your primary care physician first. After that, they can issue referrals so you can seek specialist care.

Skipping this step of requesting a referral from a primary care doctor 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.

Out-of-network availability

While your insurance company will recommend that you seek healthcare from a doctor or hospital within your network, you can still access medical care outside your network partially covered. You’ll just have to pay more out-of-pocket healthcare expenses than you would if you had gotten care from one of the preferred providers.

Other medical plans, such as the HMO plan, strictly require that you only get care from medical providers within your plan network. This means you wouldn’t be able to get any portion of your care covered if you’re out-of-network. The only exception is 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 its share.

Data from the KFF finds that covered workers enrolled in PPO plans have higher average health insurance premiums for both self-only and family coverage than the overall average premiums.

The average employer-sponsored annual plan premium for a self-only PPO policy in 2023 is $8,906, and $25,228 for family coverage¹. For cost difference comparison, an HMO plan has lower averages of $8,203 for a self-only plan and $23,758 for a family policy.

This is the same when looking at plans on the individual market. According to Forbes, the average monthly premium for a 30-year-old on an individual PPO plan is $512. However, it’s only $427 per month for an HMO.

You will also have to pay more out-of-pocket expenses if you visit an out-of-network provider outside your plan’s network.

Deductible costs

With a PPO plan, you’ll have an annual health insurance deductible. A key term in the health insurance industry, a deductible is the amount of money you must pay out-of-pocket before your health insurer covers the costs of your medical care.

For example, suppose 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 spent $2,000 worth of health insurance costs that year yet.

Filing claims

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 must file the claim documentation yourself. This process can be tricky or confusing if you’re not used to it, particularly if you have several doctor visits around the same time, such as when treating a chronic medical condition.

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 plan might be the best option.

However, if budget is your biggest concern, an HMO plan typically has lower out-of-pocket costs and monthly premium payments. However, you should investigate the plan's network of providers in your area to ensure you have access to the healthcare providers you need.

A PPO plan could be the right choice if you can afford the additional costs and need more choices from your health insurance policy. Just ensure you look at all your options before making a decision.

Can an HRA reimburse PPO premiums?

If your employer offers you a stand-alone health reimbursement arrangement (HRA), such as a qualified small employer HRA (QSEHRA) or individual coverage HRA (ICHRA), they can reimburse you for your individual or family PPO premiums up to your allowance. You’ll just need to submit proof of coverage and your premium receipts.

If your employer uses PeopleKeep to administer their HRA, you’ll submit your receipts using our software. Our team of experts will then review your documents and notify your employer when we’ve approved them.

Conclusion

Choosing the right health insurance policy 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 provider network benefits. If you have control over what policy you enroll in—be it a traditional group health plan or an individual plan—and want a policy with more flexibility, a PPO plan can be an excellent option to get the quality of care you need.

This article was originally published on March 31, 2021. It was last updated on July 29, 2024.

1. https://www.kff.org/report-section/ehbs-2023-summary-of-findings/