Preferred provider organization (PPO) plans allow members to get out-of-network care and see specialists without referrals.

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Preferred Provider Organization (PPO) health insurance is the most common health plan offered in employer-sponsored health insurance.

PPOs have higher premiums than Health Maintenance Organization (HMO) plans, but they’re known for their flexibility, including members to get out-of-network care and not need primary care physician referrals to see specialists.

PPOs have lower copayments if you use doctors and other providers in the plan’s network, but you can also go to out-of-network providers for an additional cost.

PPOs are the most common type of health insurance plan offered by employers — with 71% of the employers surveyed providing this type of plan to all or most of their workers, followed by high-deductible health plans (41%) and HMOs (28%), according to XpertHR’s 2021 Employee Benefits Survey.

Employees often have a choice of several plans. PPOs continue to be the most common type of plan selected.

In 2020, 51% of covered employees enrolled in PPOs, according to benefits consulting firm Mercer’s national survey of employer-sponsored health plans, compared to 38% in high-deductible health plans (HDHPs), which can be paired with a health savings account or health reimbursement account. Eleven percent chose HMOs.

Regionally, PPO enrollment ranges from 57% of covered employees in the South to 38% in the West, according to the Mercer study.

Here’s how PPOs compare with HMOs and HDHPs.

Source: Kaiser Family Foundation, 2020 Employer Health Benefits Survey. 

How does preferred provider organization (PPO) insurance work?

PPO plans have provider networks, but you’re not required to stay within the networks. You’ll pay less for in-network providers, but you can use out-of-network doctors and facilities, too.

You usually have to pay higher copayments and deductibles if you use health care providers that aren’t in the plan’s network, but the out-of-network care is still covered by the plan. Unlike an HMO, you don’t need to select a primary care physician to manage your care, and you don’t need a referral to see a specialist. However, you may have to receive prior approval from the plan before more expensive services are covered.

If you use an out-of-network provider, you may be responsible for extra paperwork, too. You may need to get preauthorization for certain services and have to submit the claim to the insurance company yourself. In-network providers generally complete this process themselves.

“In a PPO, members are free to choose which providers they see,” says Mark Hope, senior director, health & benefits consulting at Willis Towers Watson, an employee benefits consulting firm.

Hope says PPO members pay lower out-of-pocket costs and won’t have to file claims themselves if they see a network provider. PPO network providers are also generally responsible for obtaining any pre-certification for services.

“Conversely, members will receive a lower level of benefits (higher out-of-pocket cost) if they choose to see an out-of-network provider. Additionally, members will be responsible for filing claims, obtaining any necessary pre-certifications and may be subject to balance billing by the provider if the provider’s billed charges exceed the payment allowed by the insurance carrier,” Hope says.

What does PPO insurance cover?

PPOs cover doctor’s services, hospitalization, medical tests and radiology, outpatient services, and other health care expenses.

The plans must meet minimum standards required by the Affordable Care Act. The major difference is who is covered. PPOs have a provider network, but you’re also covered for providers out of the plan’s network. You usually have to pay higher copayments and deductibles for out-of-network care.

Before you receive care, find out whether the providers are in the plan’s network and, if they are not, how much of the cost you’ll have to pay yourself.

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How much does PPO insurance cost?

The average total cost (for both the employer’s and the employee’s share) for a PPO in 2020 was $22,426 for family coverage and $7,880 for single coverage. That’s compared to $20,809 for family coverage and $7,284 for single coverage for HMOs, according to the Kaiser Family Foundation’s 2020 Employer Health Benefits Survey.

Employers cover the bulk of the costs. Employees pay just $6,017 of the annual premiums for family coverage ($501 per month) and $1,335 for single coverage ($111 per month) on average.

Most PPOs have a deductible. A deductible is the amount you have to pay before most coverage kicks in (some preventive care, tests and other services may not be subject to the deductible).

• The median deductible for in-network care in 2020 was $750 for individual coverage and $1,500 for family coverage. 
• The median deductible for out-of-network care was $1,500 for an individual and $3,000 for a family, according to the Mercer study.

The average copayment for in-network primary care physician office visits was $25 and $45 for specialist visits, according to the Mercer study.

You usually have higher cost-sharing for out-of-network doctor’s visits, which are commonly based on a percentage of the total costs (called “coinsurance”) rather than fixed-dollar copays. For example, you may have to pay 40% of the cost of an out-of-network doctor’s visit.

Almost all PPO plan sponsors require cost-sharing for in-network hospital services. The median coinsurance amount is 20% of eligible charges, according to the Mercer study. For out-of-network services, the median coinsurance amount is 40%.

The median out-of-pocket spending maximum for in-network services is $3,000 for individual coverage and $7,000 for family coverage. For out-of-network coverage, the median out-of-pocket maximum is $6,000 for individual coverage and $12,000 for family coverage, according to the Mercer study.

This is the maximum amount you have to pay for deductibles, copayments and coinsurance for covered services (the out-of-pocket maximum doesn’t include premiums).

In some cases, you may have to pay more than the copayments and deductibles for out-of-network care. In-network providers negotiate their fees with the health plan — agreeing to accept a certain rate for each service they provide. But out-of-network providers don’t agree to charge a certain amount.

If the out-of-network provider charges more than the health plan will cover for the service, the provider may ask the patient to pay the difference — in addition to higher copayments — a practice called “balance billing.” Consumer protections for balance billing can vary by state.

Pros and cons of PPO plans

Like any health insurance plan, there are pros and cons to PPOs.

Pros

• Gives you the flexibility to see any provider
• Doesn’t require you to get a referral to see a specialist
• Has low cost-sharing for in-network providers

Cons

• Higher premiums than HMOs and high-deductible health plans.
• You can use out-of-network providers, but the copayments, deductibles, and maximum out-of-pocket spending limits are higher.
• You may have to pay additional costs for “balance billing” if the out-of-network provider charges more than the insurer’s negotiated rate, depending on your state.
• You may need to file your claims when you use out-of-network providers

HMO vs. PPO health insurance

Let’s take a look at how HMOs and PPOs differ.

• HMOs tend to have lower premiums but limit coverage to in-network providers; out-of-network providers usually aren’t covered except for emergencies in HMOs.
• PPOs tend to have higher premiums but let you use both in-network and out-of-network providers. Copayments and coinsurance are higher for out-of-network providers.
• HMOs generally require that you choose a primary care provider who manages your care. You don’t have to choose a primary care provider with a PPO.
• HMOs usually require referrals from your primary care doctor before you can see specialists. PPOs don’t require referrals to see specialists.
• HMOs tend to have low copayments for in-network providers and low or no deductibles. PPOs have low copayments for in-network providers and higher copayments for out-of-network providers but still provide coverage.
• PPOs tend to be most popular for employer plans, but HMOs tend to be more common for individual plans.