HMO or PPO? Hey, It's Your Health!

Apr 4, 2001 (Updated Apr 25, 2001)

The Bottom Line HMOs and PPOs each have their positive and negative points. Choose carefully and wisely.

I used to work for an HMO in Phoenix, (I wrote a bunch of newsletters for the company) and I got to know that industry well. I don't work in that industry currently, but I do know a fair amount about HMOs vs. PPOs. If you are confused, perhaps my opinion can help you.

What is an HMO?

A Health Maintenance Organization is a tight collection of health professionals who work for an pre-agreed, set fee.

Some HMOs are independent entities, in that all the doctors and staff are employees of the HMO (such as Kaiser Permanente). In other words, their paychecks come from Kaiser. Many of these types of HMOs have their own hospitals.

Other HMOs are a loose collection of private doctors who agree to see patients for a fee set by the insurance company (such as Blue Shield HMO). This type of HMO does not own a hospital, but contracts with local hospitals for services.

Some HMOs are non-profit, such as Kaiser Permanente. Most, however, are for-profit, where shareholders and investors must be satisfied.

HMOs are attractive to people because they can save lots of money. Office visit copayments and other fees are usually very low-cost.

However, HMOs have their downside. To understand this better, you must understand the HMO's mindset. HMOs are in business to make money. And as you know, if you are a sick person and see lots of doctors and need lots of tests, you will COST the HMO lots of money. So how do they balance this out? By keeping a tight hold on your health care. And because they keep such a tight hold on your health care, you do not need to fill out claim forms.

Restrictions and Rules to Follow

HMOs are usually very restrictive and have lots of rules. First and foremost, you can see only the doctors on your HMO list, and you must see your primary care doctor first, no matter what is wrong with you.

For instance, if you want to see a specialist, you must first get a referral from your primary care doctor. Why? Well, some people go all half-cocked to an expensive specialist when their primary care doctor could have helped them just as well. The HMO doesn't want YOU deciding how your health care should be handled, it wants its contracted doctor to make those decisions. Which is great if you have a top-rate primary care doctor. However, if your primary care doctor isn't on the ball, it could be a problem.

Some HMOs also are restrictive about changing primary care doctors. When you choose a primary care doctor, you are expected to stick with that person. If you don't like him, you can change once, maybe even twice. But some HMOs don't like you jumping around from doc to doc.

Patient Quotas

In addition, many HMOs tell their doctors to meet a patient quota each day. In other words, they must see a minimum of x number of patients. At my former HMO in Arizona, the recommendation was to see a new patient every 15 minutes. Doctors who see less than the recommended number of patients are often financially penalized or warned by the HMO. So now you understand why your doctor is sometimes rushing you out the door. HMOs don't leave room to chat.

In addition, there is the concept of Capitation. This means that contracted doctors get a set amount of money each month for each patient in their practice. They get the same amount of money whether the patient is sick and makes an appointment, or whether the patient is well is does not come into the office. Obviously, the doctor makes MORE money if they see less patients or orders less tests.

It's a shame that some doctors think more of the money than a patient's health. You must decide whether YOUR doctor has YOUR best interests in mind.


One of the interesting phrases I learned while working at that HMO was the term "bed days." How many "bed days" was the patient in the hospital? When you are in the hospital, it is expensive for your insurance company! The less "bed days" you incur, the better for them. If you have a good doctor, he/she will fight to keep you in the hospital when it is warranted. HMOs (and some PPOs, too) will try to kick you out ASAP.


Additionally, you should know that any lab or diagnostic tests you need must be pre-approved by the HMO. This can sometimes take days, or even weeks if it is something open to debate. However, once your test or hospital stay is approved, it will not cost you anything; it will be covered 100% (or close to it).

Who makes the decision about your health care? People called Utilization Nurses. These are real nurses who no longer work in medical offices. Instead, they work in the HMO (or PPO) office and manage "cases" of patients each day. They are the ones who often make the initial judgment regarding whether you should have that test, stay in the hospital another day, should see that high-priced specialist, or have that non-formulary or non-generic drug. When you "appeal" their judgment, your case is often taken to the nurse in charge, or the regional medical director for review.

In some HMOs (and even PPOs), the people who make the initial decision don't even have medical backgrounds. They are essentially clerks who are making decisions based on a book of protocols set by the HMO. Amazing but true.

The Positive Aspects of HMOs

Some people have been members of HMOs for years and love them. If you have a good primary care doctor and don't mind following the rules, you can have a positive HMO experience and save lots of money. Each HMO is different, and people are very opinionated about them. However, if you have a chronic health problem and insist on seeing specific specialists or need lots of tests, an HMO might frustrate you beyond the money you save. If you're generally young and healthy, (the type of person who sees a doctor maybe twice a year for a bad cough) than an HMO might be a good, money-saving choice.

What is a PPO?

A Private Practice Organization is a loose collection of private-practice doctors, labs, care facilities, and hospitals who contract with insurance companies and receive an agreed set rate for their services.

Less Restrictions, Higher Cost to You

PPOs are generally less restrictive than HMOs, because they are less structured, and there are far less restrictions. Because you can handle many aspects of your own health care, it will cost you more money. Copayments for office visits are higher, and you may need to pay a percentage of the cost of lab and diagnostic tests, and hospitalizations.

Just like HMOs, some PPOs incorporate patient quotas and encourage less hospital "bed days." It really depends on the PPO.

However, you have more control over your health care. You can go to any doctor of your choice, whether or not they are on the PPO list. (If you choose a doctor on the PPO list, the cost is covered at a higher rate).

With PPOs, you do not need to see your primary care doctor before seeing a specialist. You do not need a referral for that. You can just pick a doctor and see them. If they are on the PPO list, it will be covered at a higher rate.


Just like HMOs, PPOs also hire nurses and medical professionals to handle patient cases and make decisions about hospital visits and some diagnostic tests. Because you have more freedom, you might wind up filling out claim forms occasionally.

The Positive Aspects of PPOs

PPOs are good for people who want a percentage of autonomy in their health care. In my opinion, if you have many health problems and like to try different doctors or get many opinions, a PPO will probably work better for you than an HMO. It will cost you more money, but you get more freedom to make your own health care decisions.

So Which to Choose?

This depends on your individual circumstances. If you are struggling to make ends meet, or are on a fixed income, and need health insurance, an HMO can be a life saver. If you can pay more money and want to be in charge of your own health care, then choose a PPO.

Whichever you choose, it is certainly better than having no health insurance. (A sad state for many Americans). It's your body; it's your health. Know yourself and choose wisely.

A Final General Note about Doctors

Have you ever gone to a doctor who suddenly is recommending a SPECIFIC packaged product to you? These include specific brands of vitamins, foods, elixars, herbs, or even drugs? They may be products you've never heard of before.

Well if this happens, your doctor could be part of a marketing plan to sell these products. The more products the doctor sells, the more money he/she makes. In my opinion, this is downright unethical. Many people assume that because the doctor is recommending them, they must be necessary and good. This is not always true.

If it happens to you, ask your doctor point blank whether he/she makes money from the product's company for selling these items. If your doctor hedges or says yes, be very careful. Chances are, you don't really need the product, or you could buy a similar product elsewhere that is cheaper.

When in doubt, do the passive-aggressive technique. Tell your doctor you need to "think about it" and don't buy anything at his office. If he gets angry at you, it's a good sign that he is definitely making money from selling the product.

One type of doctor that has been selling products for years is a dermatologist or plastic surgeon. This is one case where I feel it is OK to buy products from the doctor, because many of these products are valid and can't be purchased elsewhere.

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