Are you considering enrolling in a Medicare Advantage plan, but don’t know where to begin? Are you not sure of the distinctions between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO)? This article is here to help! It covers an overview of both plans, and offers advice for selecting the right one for you. We also answer several frequently asked questions regarding “Medicare PPO vs HMO.”
Medicare Advantage Plan Basics
Medicare Advantage policies were originally called Medicare replacement policies. This is because that is exactly what they do, they replace Original Medicare with a privatized, for-profit actuarial equivalent of Medicare Part A and Medicare Part B.
Unlike Original Medicare, Medicare Advantage HMO plans and a PPO plan restrict your health care to a provider network. In addition, your doctor is required to seek pre-approval from your insurance company before providing any non-urgent treatment.
The Medicare beneficiary may not be allowed to seek healthcare outside their local network with some plans, or may be charged more and have a higher annual out-of-pocket maximum with other plans.
We will discuss this in more detail later in this article. For now, it should be noted that on average, people who choose a Medicare Advantage Plan over adding a Medicare supplement to their Medicare Part A and Medicare Part B do so because the premiums of a supplement plan are simply not withing their budget. We review the demographics of Medicare choices in one of our videos on Medicare Explained.
Key Takeaways
Medicare Advantage Plans are offered as an alternative to Original Medicare, providing a rough equivalent of Original Medicare without a supplement, that may include prescription drug coverage and an out of pocket maximum.
A common myth about Medicare Advantage that even many insurance agents get wrong is the myth that a Medicare Advantage Plan must provide all the same benefits as Medicare Part A and Part B. That is not accurate. The Advantage Medicare plan must offer benefits in all the same categories as Original Medicare, but not the same benefits. For example, if your doctor prescribed 20-physical therapy sessions to recover from a joint replacement and you have Original Medicare, you will get 20-physical therapy sessions. With a Medicare PPO or Medicare HMO your doctor must ask permission to prescribe the physical therapy and the insurance company will only approve a lesser number of sessions. Same category (physical therapy), not the same benefits.
A second common myth is that with a PPO plan you can see any doctor that accepts Medicare. Again, not accurate. The truth is you can ask any doctor that accepts Medicare if they will accept your insurance. They can, and more often than not, do say no.
Medicare Advantage HMO and Medicare PPO plan networks vary in size, out-of-pocket costs and referral requirements. On average, Advantage Plan networks only include about 46% of physicians who accept Medicare in their network area. It is important to research the size and scope of the network before choosing a plan.
A major difference between HMO and PPO plans is the extent of coverage for care outside of the network, and the ability to seek out advice from a specialist without the prior approval of your Primary care doctor.
Medicare Advantage Plan
A Medicare Advantage Plan is a Medicare-approved plan from a private company that provides an alternative to Original Medicare for health and drug coverage. These plans typically comprise Part A, Part B, and often Part D.
In addition, Medicare Advantage Plans can provide access to additional services, such as vision and dental coverage.
Advantage Plan benefits and costs change annually. However, the Medicare beneficiary can re-shop their plan every year, and select a new plan without medical underwriting requirement. This means enrollees can choose the plan that best meets their needs and budget every year.
The Health Maintenance Organization (HMO)
A Health Maintenance Organization (HMO) is a health insurance plan that typically provides integrated care focusing on wellness and preventive care.
The Medicare HMO will use a network of healthcare providers who have contracted with the insurance company to accept the specific plan. Services outside of that network are not insured unless they are emergency or urgent care. There are always some exceptions, especially when the network of contracted healthcare providers is too small to include some needed and important specialist care.
HMO Network Restriction’s
With most Medicare Advantage HMO’s you have a designated primary care physician (PCP) who serves as gatekeeper and cost control. The Primary care doctor directs your coverage and control if, when and who you can see for specialist care or other health care providers. With a Medicare HMO your primary care physician is often rewarded financially if they keep insurance costs down. Sometimes that means not letting you see a specialist you may wish to see.
With the Medicare Advantage HMO, the primary care provider and provider network can determine the quality of your care. You often have lower costs for healthcare and a lower maximum out of pocket. In return you have a more limited provider network than with the PPO and less freedom to seek the care you may need.
The Preferred Provider Organization (PPO)
A Preferred provider organization (PPO) also leans on provider networks. You will have a Primary Care Provider with you PPO, but your primary care doctor does not control your health care or limit who you can see.
Your Primary Care physician is still important, just not controlling.
The PPO health care plan usually has a larger plan network than an HMO and will
allow you to seek help outside your plan network. Keep in mind, out-of-network physicians are not required to accept you as a patient. However, you are allowed to ask. If the doctor agrees, then the insurance company will pay the doctor, but your costs will likely be higher.
When comparing a Medicare HMO vs a Medicare PPO, the PPO plan usually offers you more control over your health care.
Furthermore, PPO plans often cover a greater selection of prescription drug coverage and but higher out-of-pocket maximums.
PPO Network Restrictions
As I see it, there are two significant constraints with a Medicare PPO plan.
The first is that your PPO plan doctor must get approval before providing non-urgent care or non-emergency care. This is the same with the HMO. But PPO plan members can’t be stiff armed by a controlling primary care physician.
The second issue is that if you wish to use out of network providers, and you find a provider that offers you out of network care, you will then pay a higher cost for your healthcare. A PPO plan with Medicare will also have a much higher maximum out of pocket for plan members who use out of network providers.
Staying within the plan’s network is important to control your costs.
Overview of Medicare HMO and PPO Plans
Medicare Advantage plans are offered by private insurance companies. These include Medicare HMO and Medicare PPO plans. While not all Medicare Advantage Plans are a Medicare HMO plan or PPO plan, about 98% of all Advantage plans are defined as either Medicare Advantage HMO plans or PPO Medicare Advantage plans.
In 2023 there were 3,998 different Medicare Advantage plans in the U.S. Each with its own benefits and costs. 89% of these plans include Prescription Drug Coverage through a bundled Part D plan.
Health maintenance Organizations (HMOs) account for 58% of all Advantage Plans. Preferred provider organizations (PPOs) account for 40% of all Advantage Plans.
In 2023, about half the counties in the U.S. offer an average of 40 different Medicare Advantage Plans. the top 27 US counties offer 75 or more Advantage plans. Just over 1,000 counties in the rural United States offer from zero (0) Advantage plans to no more than 20.
What Do Medicare Advantage HMO and PPO’s Have in Common
Medicare Part C, also known as Medicare Advantage program, offers both HMO and PPO plans.
While there are important differences between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO), to better understand them we should first examine their similarities.
Both the Medicare Advantage HMO and Medicare PPO are offered by private insurance companies. Private insurance companies design the plans within the parameters allowed by Medicare. Then manage the plans, including requiring pre-authorizations before non-urgent procedures and the ability to deny coverage.
Both Medicare PPO plans and Medicare HMO plans are Annual Plans. Each plan ends on midnight, December 31st of each year and is not renewable. That means that any cost or feature of the plan can change from one year to the next.
Both the Medicare Advantage PPO and Medicare Advantage HMO have network limitations. Those limitations may very between plans and plan types.
Both the Medicare Advantage PPO and Medicare Advantage HMO offer an
annual maximum out of pocket limit for inpatient and outpatient services. For 2023, the maximum out of pocket limit can be as much as $8,300 if your services are strictly in-network and $12,450 for out-of-network services. Many plans have lower maximums. This does not include spending for Part D Prescription drugs or any premium. This contrasts with a maximum out of pocket of just $226 if a person has a supplement Plan G, or just the sum of $226 plus $20 per office visit if they have Medigap Plan N.The benefits of both the Medicare HMO and Medicare PPO are, by design, equal to the actuarial equivalent to Medicare Part A and Part B (without a supplement). This simply means that the average or median person on these plans is expected to spend the same in healthcare costs as if the had Original Medicare.
With all Medicare Advantage plans, the Medicare recipient must still pay Part B monthly premium plus and IRMAA (Income Related Monthly Adjustment Amount) as determined by income. You cannot escape the IRMAA surcharge or Part B premium with an Advantage plan.
Medicare’s Health Maintenance organization (HMOs) and Preferred provider organizations (PPOs) offer lower monthly premiums or no monthly premium as compared to a Medicare supplement. This should be expected because they are not as much coverage as Original Medicare plus a supplement.
Each Advantage plan has its own schedule of deductibles, copays and coinsurance. However, every Advantage Plan I have seen across the USA only covers 80% of cancer treatment up to the plan maximum out of pocket. The maximum out of pocket resets every January 01.
Most Medicare PPO and Medicare HMO plans include bundled Part D Prescription drug coverage
None of the Advantage plans allow a physician to charge a Part B excess charge. Excess charges are forbidden with Medicare Part C. No Excess charges allowed
annual maximum out of pocket limit for inpatient and outpatient services. For 2023, the maximum out of pocket limit can be as much as $8,300 if your services are strictly in-network and $12,450 for out-of-network services. Many plans have lower maximums. This does not include spending for Part D Prescription drugs or any premium. This contrasts with a maximum out of pocket of just $226 if a person has a supplement Plan G, or just the sum of $226 plus $20 per office visit if they have Medigap Plan N.Understanding the Difference Between HMO and PPO Plans
Most HMO requires a Primary Care Provider who controls your access to other health care providers. Most PPOs allow you to see an in-network specialist without requiring permission from your PCP
Most HMOs have a smaller provider networks with no insurance coverage outside the network. Most PPOs have larger provider networks and offer the ability to ask an out of network doctor if they will accept your Medicare PPO medical insurance.
When comparing a Medicare HMO vs a PPO plan, the HMO usually has a lower maximum out of pocket and lower office visit copays.
Choosing the Right Plan for You
When we help our clients select the right Advantage plan for their needs, we have a process that works very well.
First we get a list of the health care providers they see on a regular basis and not which is their Primary Care doctor. This way we can select the plan with all or most of their health care providers in-network.
We then look at their prescription drugs. They list out all their medications so when we review plans, we consider the plans prescription drug coverage and costs. It makes no sense to choose a low cost health care plan and spend too much on drug coverage.
The next step is to review the hospitals in their area so we can be assured that the hospital insurance part of the Advantage plan has them covered.
This information is inputted into our software, the most sophisticated Medicare Advantage plan shopping software available. It compares the data with all the Medicare Advantage plans offered in the area. It compares prescription drug coverage, a plan’s network and costs.
With this information, we can easily compare Medicare Advantage plans and review select those that will provide the benefits needed. We compare costs and benefits. Our system helps people find the right plan and insurance company. It’s in this step we can compare PPO Medicare advantage plans to HMO plans and help our client determine which is best for them.
Will All Medicare Doctors Accept My HMO or PPO?
On average, only 46% of physicians that accept Medicare will accept an Advantage plan. Even then, they may not accept the one you have. This is the opposite of working with a Medicare supplement where every doctor that accepts Original Medicare will accept any supplement from any insurance company.
When we help clients choose an Advantage plan, making certain your health care providers are in network is the very first step we take.
Find a $0 Premium Medicare Advantage Plan
In many large metropolitan areas there will be several zero premium Medicare Advantage plans offered.
Insurance companies can offer a zero premium plan because they have three other sources of revenue.
The first source of revenue is a monthly check from the U.S. Government. Depending on the plan, the insurance company can receive over $1,000 month for every person enrolled.
A second source of income is that they receive the monthly premium you continue to pay toward your Medicare Part B.
Lastly, the money you spend when cost sharing your medical bills helps the insurance company keep their costs down and pay for the zero dollar premium.
While zero dollar premium plans are very popular, there are also many very low premium plans with great benefits. We help our clients identify the plan with the best benefits that remains comfortably within their budget.
Summary
When it comes to health care, individuals must consider all options in order to select the plan best suited to serve their needs and budget.
For those on Medicare, this tends to lead to researching the differences between a
Medicare Advantage Plan HMO versus a PPO. While both provide similar basic coverage as Original Medicare, the major difference is that HMOs do not offer coverage for out-of-network providers whereas PPOs do, albeit at an additional cost.
In making a decision between these two plans, potential clients also need to keep in mind network restrictions. The network defines who they can depend on when their health and well being is on the line. The more robust the network, the greater probability of finding the a good primary care physician and the specialists you need.
Choosing the right Medicare Advantage plan is a process, and choosing between an HMO and a PPO should involve taking into account individual preferences, current health care needs, and budgetary constraints. Fortunately, an extensive understanding of each option can make the selection process easier, allowing individuals to make a well-informed decision and determine the best plan for their own specific circumstances.
Frequently Asked Questions
What’s the difference between a PPO and HMO for Medicare?
The main differences between a Medicare PPO and an HMO plan are cost and flexibility. A Medicare HMO typically comes with lower premiums, but you must obtain care within the network to benefit from the lower costs.
On the other hand, a Medicare PPO plan gives you the flexibility to obtain care both in and out of the network, however out of network costs can be significant.
Why would a person choose a PPO over an HMO?
PPOs provide greater access to out-of-network providers for a higher cost than HMOs. With a PPO plan, you have access to more providers and the freedom to get care from any provider you choose that accepts your insurance, albeit at a higher cost than an HMO would. Generally speaking, PPOs provide greater flexibility. PPO plans tend to provide more flexible options than HMOs, with no restrictions on going out of network and less emphasis on selecting primary care physicians.
If you value choice and flexibility in your plan, a PPO may be the better option for you.
What is a disadvantage of a PPO plan?
The primary disadvantage of PPO plans is higher out-of-pocket costs than for HMO plans.
What does PPO mean for Medicare?
PPO is an acronym for Preferred Provider Organization; a private health insurance network created by the U.S. government to help Medicare recipients get the coverage they need. With a PPO, users have access to a wide range of in-network doctors and hospitals that are willing to offer discounted rates and services at no extra cost.
Is Medicare considered an HMO?
No, Medicare is not an HMO. It is a government-run health insurance program that covers various medical expenses for those over the age of 65 or with certain disabilities.
An HMO is a type of Medicare Advantage plan (Part C) offered by private companies that cover benefits aside from what Original Medicare covers.
Sources
https://www.kff.org/medicare/issue-brief/medicare-advantage-2023-spotlight-first-look/
Matthew Claassen
Matthew Claassen, CMT and CEO of Medigap Seminars Insurance Agency. Medigap Seminars is an award winning premier national Medicare Insurance Brokerage, ranked among the top in the U.S.A. Matthew is considered a leading national expert on Medicare and Social Security. Mr. Claassen is a distinguished member of the Forbes Business council, an invitation only organization of business leaders and entrepreneurs. He and his team have received awards from many of the countries largest insurance companies including Mutual of Omaha, Aetna, Humana, Cigna, United American, United Healthcare and others. His videos have become the most popular Medicare educational videos on YouTube with millions of views. As a financial analyst Matthew lead a team of researchers to win the 2009 Best Equity Research & Strategy Award from The Technical analysis magazine.
