PPOs offer advantages over some other healthcare options.
PPOs, or Preferred Provider Organizations, are health care plans with some of the features of HMOs, or Health Maintenance Organizations. Though usually more expensive, they are generally more flexible.
The Network
The preferred provider network is the most defining feature of the PPO. The PPO negotiates rates for various services with these providers in order to control their costs. In return, the providers obtain business from the PPO that might have gone to their competitors. Coverage within the network may involve payment of a co-pay at the time service is rendered. Some PPOs will cover routine visits to physicians' offices, while others may not.
Comparison to HMOs
HMOs are generally more affordable, but less flexible than PPOs. Under an HMO, you must select (or be assigned) a primary care physician. This physician will always be the one you see before being referred to a specialist (if needed). Under a PPO, you may select any physician in the network and may change to any other physician in the network when you like.
Out-of-Network Coverage
While HMOs may approve specific physicians for in-network coverage, they may also opt not to approve them. Any providers who are not approved as in-network will not be covered at all. You will be responsible for any charges generated by these visits. Under PPOs, the insurance will still pay for out-of-network care. In-network care will be covered at a higher percentage--80 percent is typical--while out-of-network care may only pay 60 percent.
Premiums and Deductibles
While HMOs require premiums, PPOs also factor in deductibles. You must pay the designated deductible in medical costs before the insurance starts to pay for your medical care. While PPO premiums are generally higher, when they are lower, it is usually because the deductible has been set to a relatively higher level. Because of this, when sickness strikes, the PPO still works out to be the more expensive of the two types of plan.
Health Savings Accounts
Some PPOs--those that use the high-deductible health plan model--allow the use of a health savings account (HSA). With an HSA, you can save money, tax-free, for later use on medical expenses. When you withdraw it for such expenses, you do not have to pay taxes on it either. If you should never need it, it can be withdrawn after retirement age (65 years old). While the money is in the account, it can be invested and thus grow tax-free. You will have to pay taxes on withdrawals after retirement age and both taxes and penalties on any withdrawals prior to retirement.
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