Health insurance 101: What is a PPO?

June 15, 7:56 AMHealth Care ExaminerSheila Guilloton

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The price and benefits of a health insurance plan
   will depend on the kind of plan selected

A PPO is another managed care system  similar to an HMO. But unlike an HMO a PPO usually has less restrictions on the insured. PPO is an acronym for Preferred Provider Organization or Participating Provider Organization.

The concept of the PPO originated in California in 1982. The California legislature wanted a system that would allow selective contracting for Medicaid through private insurers. Other states followed soon after enacting laws to allow Preferred Provider Organizations to operate in their state.

PPOs have many of the same features as HMOs. The plans are constructed in such a way as to offer a set monthly rate for the insured. The insured selects a co-pay, which is the charge the insured will pay to see the provider.

In most states the rate is based on geographic location (where in the state the insured lives) and sex and age. Some states offer community rating, which does not take into consideration sex and age.

PPO coverage and payment of claims depends on what provider treats the insured. A PPO has a network of doctors, hospitals and ancillary service providers. These network providers have a contractual agreement with the insurance company to charge a certain rate  for a certain service.   Typically the contracted rate is discounted from the usual and customary fee for service rate.  The non-insurance health plans being sold today, advertise these contracted rates as the basis of the benefit they offer for membership.

Unlike an HMO, the insured usually does not need to name a Primary Care Physician (PCP) nor do they need to get a referral from a PCP before they see a specialist. The insured members have the advantage of being charged the contracted rate if they see a provider in the PPO network. When using a network provider, they are protected from balance billing. That is, a member may not be charged more than the contracted rate if they use a network provider. If the member chooses to go outside the network, they can do so (unlike an HMO) but they will be charged a higher rate and usually additional deductibles for services.

Many group HMOs have a provision called a Point of Service option or POS.   POS plans are essentially hybrid plans combining both an HMO and an indemnity plan. When the insured goes to a provider in-network, they pay a specific fee and cannot be balanced billed. If the same insured goes to a provider not in their network, they will pay a significantly higher set of fees.

Some insurance companies in certain states offer a plan known as an EPO. An EPO is like a PPO but with a much smaller and limited network. However, EPOs frequently are more controlled and because of their smaller size can offer even better discounts than the larger PPOs. 

To determine which plans are sold in your state, consumers should check with their State Department of Insurance. Many states, including Connecticut, publish a report card of complaints lodged by consumers against the plans operating in the state.