HMO vs. PPO, Premiums, Deductibles...Finally Explained

There are 6 crucial things people must know about their health insurance, and most people have no idea what those 6 things are.

It is impossible to navigate the healthcare system if you don't understand your health insurance coverage. Most of us look at our health insurance coverage information once a year during open enrollment (when you can choose or change your insurance), which is usually in the fall. You read through what is offered and try to make an informed decision, but no one explains the terms you are trying to compare. A client told me that she just picked the same insurance plan as her coworkers because it was too confusing to figure out the differences.

I have been navigating the healthcare system for over 17 years, and I dreaded open enrollment. I was trying to compare plans, but I was never given all of the information I needed, and what I was given was frequently too complicated to really understand.

That changes today. I imagine you've heard the terms I am going to be explaining today, but I am going to walk you through each of them, so that they are finally explained.

Premium: The price you pay each month to have insurance coverage

If you have your coverage through the Affordable Care Act (ACA), you most likely know the dollar amount because you have to make that payment each month in order to have healthcare coverage at all. The Affordable Care Act is also called Obamacare. It is a federal program for people to purchase health insurance if it isn't provided by their employer. If you get your insurance through your employer, it most likely gets taken directly out of your paycheck before you ever see it.

Deductible: The amount of money you pay yourself before insurance ever pays a dime

You are required to pay a certain amount of money out-of-pocket, meaning you alone pay the money, before your insurance company pays a single cent.

Copay: The set, flat rate that you pay for an individual visit or prescription before you receive it

When you go to the doctor, the front desk assistant will often say something like, "You have a $10 copay." This means that you have to pay $10 before you can even see the doctor. In many cases, that is the full amount you will have to pay for the visit or prescription.

Coinsurance: The percentage of the cost of the visit or procedure that you pay

While coinsurance is a set percentage, it is not a set cost, like a copay. After you have the office visit or procedure, you are responsible for paying a percentage of the total cost, and your insurance company is responsible for the remaining amount. For example, if your coinsurance is 20% and the cost of the visit was $100, you would pay $20 and your insurance company would pay $80.

Out-of-Pocket Maximum*: When you've paid a specific amount for care in a calendar year and then the insurance company pays 100% for the rest of the year

Insurance companies set a specific amount as the total you have to pay for medical care for the entire year. It's usually really high, as in thousands of dollars, but once you've paid it, your insurance company pays 100% of medical costs for the rest of the year.

*If your insurance network structure covers out-of-network providers, there is one out-of-pocket maximum amount for in-network providers and a separate one for out-of-network providers.

Network Structure: The structure of your health plan determines your access to care and the doctors you can see.

What are the different network structures? HMO, PPO, POS, or EPO.

You have probably heard these acronyms thrown around, but what do they stand for and why should you care?

• HMO - Health Maintenance Organization
• PPO - Preferred Provider Organization
• POS - Point of Service
• EPO - Exclusive Provider Organization

This is the single most important thing to understand about your health insurance coverage, and you should care because the network structure determines which providers you are allowed to see and whether or not you can see a specialist, like a heart doctor, directly or if you have to see another doctor first.

When you are asked, "What kind of insurance do you have?" they aren't just asking for your insurance company, for example, United Healthcare, Cigna, or Blue Shield. They want to know both your insurance company and your network structure.

For example, if someone asked, "What kind of insurance do you have?" you could say, "I have a Cigna HMO." As I said before, most people don't know what their network structure means. I don't say this as an insult. It's just a fact. It's not your fault. No one takes the time to explain it to you. If you are somehow extremely lucky, someone in the Human Resources (HR) department will give a brief overview of the plans during open enrollment, the time when you choose your insurance plan. I, personally, have never had someone sit me down and explain network structures. I had to learn it on my own.

I had a client who would just receive a link from their employer in the fall, during open enrollment, and they had to compare plans, without any direction or explanation. Let's face it, you may not have a choice. Your employer may only give you one insurance plan option.

Today, I'm going to finally explain each of the insurance network structures.

HMO (Health Maintenance Organization)

• You must see a primary care physician (PCP) first for everything. They have to give you a referral before you can see a specialist, even if you know you need to see an orthopedic specialist because you have a shoulder injury.
• You must see in-network providers (doctor, physician assistant (PA), nurse practitioner (NP), or hospital), meaning they have accepted ahead of time that they will get paid a certain amount of money by the insurance company.
• You do not have the option to see a provider that is not in-network, also called out-of-network. If you want to go out of the network, you have to pay the full amount of the visit yourself.

PPO (Preferred Provider Organization)

• You can see a specialist, like a heart doctor, directly without having to see a PCP first. You don't need a referral.
• You can see a provider that is out-of-network, which means the provider doesn't have a contract with your insurance company. You will most likely pay more than if you had gone to an in-network provider, but you have the option to go to whichever provider you wish, and your insurance will pay a portion of the cost.

EPO (Exclusive Provider Organization)

• You can see a specialist directly without having to see a PCP first.
• You must see in-network providers.
• You do not have the option to see a provider that is not in-network. If you want to go out of the network, you have to pay the full amount of the visit yourself.

POS (Point of Service)

• You must see your PCP first before you can see a specialist.
• You can see a provider or go to a hospital that is out-of-network, but you will need a referral from your PCP first. You will most likely pay more than if you had gone to an in-network provider, but you have the option to go to whichever provider you wish, and your insurance will pay a portion of the cost.

Kaiser Permanente (Kaiser) - Integrated HMO

• You must see your PCP first before seeing a specialist.
• You must use Kaiser providers, labs, hospitals, and pharmacies.

Kaiser is different from other health insurance companies. Let me explain how it is different. Kaiser is an integrated HMO. Now, what does that mean? Kaiser isn't just an insurance company. Kaiser also provides care. Kaiser employs its own providers, runs its own labs, hospitals, and pharmacies, all under one roof. Kaiser is a one-stop shop. If you don't have Kaiser, most likely, your doctor is in one place, the hospital is separate, and you get your prescriptions filled at your local pharmacy.

Now that we've covered the 6 most crucial things to know about your health insurance coverage, I want to mention the four government insurance plans that are completely separate from traditional, employer-sponsored insurance or insurance from the ACA (Obamacare) marketplace.

These government plans are designed to help low-income citizens, the US military, and certain Native populations.

• Medicare — For seniors 65+ and people on permanent, federal disability, called Social Security Disability (SSDI)
• Medicaid — For people with low income
• TRICARE — For people in the military (active duty military service members, retirees, National Guard and Reserve members and their families)
• Indian Health Service (IHS) — For American Indians and Alaska Natives who are members of federally recognized tribes

In this blog post, I've given you a clear overview of insurance coverage terms, as well as different healthcare structures. In my program, Decoding Healthcare, I dig deeper and also explain the pros and cons of each healthcare structure. To learn more about the Decoding Healthcare Program, or to work with me, book a free 15-minute consultation here.

Definitions

Open enrollment: the dates during which you choose and enroll in your health insurance plan.

Affordable Care Act (ACA)/Obamacare: a federal program that allows people who don't have health insurance through their job to purchase insurance for themselves and their families.

Out-of-pocket: money that you have to pay yourself.

Provider: doctors, hospitals, and other medical professionals (physician assistants (PAs), nurse practitioners (NPs)).

Medical professional*: doctors, physician assistants (PAs), and nurse practitioners (NPs) who bill insurance.

*Registered Nurses (RNs) and Licensed Practical Nurses (LPNs) are medical professionals, but they do not separately bill insurance for their services.

Primary Care Physician (PCP): a medical professional who is focused on your overall health, not specializing in one type of body part or body system, and the medical professional you go to for your annual physical or if you have the flu.

Specialist: a medical professional who focuses on one type of body part or one type of body system, like how a cardiologist is a heart specialist and a pulmonologist is a lung specialist.

Referral: what your provider sends to another provider, so you can be seen by that provider, usually from a PCP to a specialist.

In-network: a group of providers and hospitals that have an established contract with your insurance company, in which they've already accepted a set price of what they will get paid for a visit or procedure.

Out-of-network: any provider that is not in your network, who does not have a contract with your insurance company.

Integrated HMO: when the insurance company is also the one who gives the medical care.

No Surprises Act: a law, effective January 1, 2022, that provides financial protection in the case of a medical emergency when you may need to go to an out-of-network hospital.

Frequently Asked Questions

Do I have to pay my deductible every year, or can I pay it once and have insurance pay for my doctor visits and procedures as long as I have the same insurance provider? Your deductible resets at the beginning of every calendar year. So, if you paid your $500 deductible in 2025, on January 1, 2026, that is erased, and you have to pay the $500 deductible in 2026 before insurance will pay a dime for your care. It doesn't matter if you have the same insurance provider or if you switch insurance companies.

Does my premium count toward my deductible? No, unfortunately your premium is just the monthly cost of having access to health insurance.

Do copays count toward my deductible? For most plans, copays do not count toward your deductible, but they do count toward your yearly out-of-pocket maximum.

What does it mean to meet your out-of-pocket maximum? Meeting your out-of-pocket maximum means that you have paid the maximum amount your insurance requires for medical care. Once you've paid this amount, your insurance company pays 100% of the cost of your medical care for the rest of the year.

Does my premium count toward my out-of-pocket maximum? No, unfortunately only your deductible, copays, and coinsurance apply to the out-of-pocket maximum.

If I have medical insurance, why do I still get a bill after a visit or procedure? You still get a bill because you may owe a deductible, a copay, or coinsurance.

What happens if I have a medical emergency and I go to, or am taken to, an out-of-network hospital? If you have a true medical emergency, go to the nearest hospital. As of January 1, 2022, with the passage of the No Surprises Act, your insurance company is not legally allowed to charge you more than they would have charged if you were at an in-network hospital. Once you are stable, alert, and can be transported without medical equipment, you must go to an in-network hospital. If you choose to stay at an out-of-network hospital, you lose the financial protection of the No Surprises Act.

Which is better, an HMO or a PPO? One isn't better than the other. They are different. Factors to consider are the cost and flexibility. An HMO is usually less expensive. A PPO provides more flexibility of which providers you can get care from. For a more detailed comparison, as well as pros and cons, click here to book a free 15-minute consultation with me to discuss my program, Decoding Healthcare.

What is the difference between Medicare and Medicaid? Medicare is for seniors 65 years and older, as well as for people on permanent federal disability. Medicaid is for people with low income. If you are a senior 65 years or older, or on federal disability, and are low-income, you can potentially qualify for both Medicare and Medicaid.

Sources

Getting emergency care | HealthCare.gov

No More Balance Bills for Emergency, Air Ambulance and Other Services

Coming Next Week: What is an EOB and how do I read it? Finally Explained.