HMO to PPO: What Abbreviations in Insurance Plans Really Mean

A Guide to Determining What Type of Insurance Plan You Have

Enrolling your family in the right type of insurance plan for your needs can be a daunting task. Health care providers (also known as HCPs) offer different levels of care based on the type of health insurance coverage you have. Insurance companies offer various options as well so it's wise to understand exactly what you're siging up to carry.

The most common one heard is HMO. These letters stand for Health Maintenance Organization. The first HMO dates back to the 1930's, decades before most consumers ever heard the term. A HMO works as follows:

The employer (for group plans) or the insurance company buys a health care service package from a hospital or health care provider for an agreed monthly fee.

Premiums are paid no matter what kind of services are provided, claims made, or amounts accrued.

The HMO owns the facility - i.e., the hospital, medical center, clinic, and is the employer of the health care professional that HMO members are required to use. Most plans allow patients to seek care outside of the HMO network but the cost of care outside the organization is costly. Often, little or no coverage will be given.

Physicians who are part of the HMO network receive a salary and often bonuses if the HMO makes a profit AND if costs are kept as minimal as possible.

There are many hybrid versions of HMO plans today. Each, however, should contain the same basic elements. Some are more lenient toward seeking care outside the network organization; others are tailored to a specific group's needs. As health care costs climb, more costs come straight out of the consumer's pockets. Versions and variants of the basic HMO include the following:

PPOs were created out of some concerns about HMOs. PPO stands for Preferred Provider Organization and it differs from most HMOs in that independent practices contract to provide services to PPO members at lower prices. Each medical practice receives less money than under an HMO plan but in today's climate, physicians and providers who won't agree often lose patients.