Health Insurance Plan Comparison: HMO, PPO, EPO Differences Explained

Health insurance provides some financial protection for injury, illness, or accident.

It also covers some of the costs of preventative care. 

With so many health plans, choosing the right one for you and your family can be challenging.

Comparison shopping is crucial to finding the proper coverage. But it's also essential to understand how different types of plans work.

Health Maintenance Organizations (HMOs)

You'll likely come across several HMO insurances as you shop health insurance plans. It's a popular type of health insurance plan. 

They involve a network of doctors, hospitals, and other healthcare providers. Since you're staying within a particular network, you can get coverage at a lower price. 

When choosing an HMO, you'll select a primary care doctor. This doctor is your initial point of contact for all health care needs. Your primary doctor may refer you to a specialist for additional care if necessary.

Pros

The main advantage of HMO health plans is that they have lower out-of-pocket costs.

This includes lower costs for premiums, prescriptions, and other fees.

Since you must work with a primary care doctor, you can also build a relationship with a doctor.

The doctor can also become familiar with your medical history.

Cons

The disadvantage of an HMO is that you must receive care within a particular network.

The plan may not cover services you receive outside the network. 

If you experience a true emergency, the plan might cover out-of-network emergency care.

This is on a case-by-case basis.

Some people also dislike the rule of seeing their primary care doctor before seeing a specialist -- a referral is required.

Preferred Provider Organizations (PPO)

You also have the option of PPO insurance, which provides more flexibility and has fewer restrictions. 

Pros

These health insurance plans also include a network of doctors. But you're not required to stay within the network.

You can use an out-of-network doctor, too, although you'll pay higher out-of-pocket costs. 

This flexibility makes PPO plans advantageous.

Another benefit is that you don't have to see your primary care doctor before visiting a specialist.

Cons

Keep in mind:

PPO plans have higher premiums compared to HMOs.

And since you don't have to use a primary care doctor, you might have to coordinate your care.

Exclusive Provider Organizations (EPOs)

EPOs are like HMOs because you must also use doctors, hospitals, and other healthcare providers within a specific network.

Pros

EPO plans are generally cheaper than HMOs. 

One advantage:

You don't need a referral to see a specialist.

Cons

Understand, though, that you might have limited provider options. 

Also, the plan doesn't cover services from providers outside of the network. If you want to make an appointment with a specific specialist, and this specialist isn't within the network, you'll pay this cost out-of-pocket. 

The exception is if you need emergency care. In this case, the insurance may cover your costs when treated at an out-of-network emergency care facility.

Point-of-Service (POS) Plan

A POS plan might be right for you if you like certain aspects of an HMO and PPO. These types of plans offer features characteristic of both HMOs and PPOs.

With this hybrid plan, you can also choose a primary care provider.

Pros

If you need to see a specialist, your primary care doctor can provide a referral within the network.

But there's also the freedom to venture outside of this network. 

This is a significant plus if you want to see a specific doctor, yet the doctor isn't within the plan's network.

Cons

The downside is that venturing outside the plan's network means you'll pay most of your healthcare costs out-of-pocket.

What Are Key Terms When Shopping for a Health Insurance Plan?

It's not only essential to understand the different features of various health insurance plans. It's also important to understand your costs. 

With any health plan, you'll likely have some out-of-pocket expenses depending on the nature of the treatment.

You might contribute cash toward doctor appointments, outpatient care, labs, and other services.

Essential costs you'll pay with health insurance:

1. Monthly premium

Your monthly premium is the amount you pay each month for health insurance. 

Different factors determine your premium. These factors include the amount of your deductible, co-pay, and coinsurance.

Typically, the more you're willing to pay out-of-pocket for healthcare services, the lower your premium. 

The number of individuals covered under your health plan also influences your monthly premium.

Therefore, a policy covering two people might be less than one covering four people.

2. Deductible

Despite paying a monthly premium, you're still responsible for paying a certain amount of your healthcare costs out-of-pocket before your insurance picks up the tab.

The only exception is for preventative care.

The annual deductible is what you pay before your plan covers certain services for that year.

Deductibles vary, with some plans having deductibles as low as $1,000. Other plans might have deductibles as high as $3,500, $5,000, or $10,000+.

Choosing a higher deductible can lower your monthly premium. But you should only select a higher amount if you can afford to pay for some out-of-pocket services.

3. Coinsurance

After meeting your annual deductible, most insurance plans also include coinsurance. This is what you'll pay for care out-of-pocket after you've met your deductible. You'll then share the cost with your insurer. 

Typical coinsurance under a health plan might be 20 percent or 30 percent.

For example, if you owe 20 percent coinsurance on a procedure that costs $1,000, you'll pay $200 out-of-pocket. Your insurance company pays the remaining balance.

4. Co-pay

Your co-pay is the flat fee for certain types of care, typically doctor appointments.

Co-pays can vary depending on whether you see a primary care doctor or a specialist. This payment is due at the time of service.

You might have a $25 co-pay for your primary care doctor and a $50 co-pay for your specialist.

High Deductible Health Plans (HDHP) and Health Savings Accounts (HSAs)

Health insurance plans and healthcare costs are expensive.

But you can reduce your costs by enrolling in a high-deductible health plan and then combining this plan with a health savings account.

High-deductible health plans have a higher deductible compared to most insurance plans.

The upside is that you'll pay a lower monthly premium.

The downside is that you'll pay more out-of-pocket for your healthcare costs.

Since you'll pay out-of-pocket for many medical expenses, you're typically charged a lower rate for services. This rate is negotiated between your insurance company and the healthcare provider. 

The good news, though:

Even with a high deductible health insurance plan, certain expenses are covered 100%. These include physicals, vaccinations, mammograms, and colonoscopies.

Combining your high deductible health plan with a health savings plan is also an option. With this type of savings account, you'll set pre-tax money aside, which you can use to pay for qualified medical expenses. These expenses include your deductible and coinsurance. 

You can decide how much to save in this account.

However, you can only set up an HSA if enrolled in a high-deductible health plan. You can purchase these plans independently or through your employer's group health plan.

Final Word

Understanding your out-of-pocket costs is crucial when choosing the right type of health plan.

When shopping for any plan, consider your health care needs.

If you're relatively healthy, young, or don't see a doctor often, a health plan with a higher deductible might work for you. 

Since deductibles don't apply to preventative services, you can see your doctor for routine care without spending much out-of-pocket money.

But although a high deductible plan can save you money, these plans make sense when you have cash in savings to pay for services on your own. If not, choosing a plan with a lower deductible might be better, especially if you see a doctor frequently.

If you're currently working with a primary care doctor or a specialist, ensure that these doctors are within a plan's network before signing up.

If not, you would have to switch providers or pay out-of-network costs each time you see certain providers.