HMO vs. PPO Health Insurance: Costs, Networks, and Referrals

Your employer offers two health plans. The HMO costs you $260 a month, while the PPO costs $355. At first, it seems the choice is simply about whether the PPO’s extra freedom is worth $95 a month.

However, the letters HMO and PPO do not tell you whether your doctor is in the network, how much your medicines will cost or how much you could pay in a bad year. Instead, a useful comparison starts with the exact plans in front of you: their networks, their rules and their full yearly costs. So in this lesson, we explain the difference with 2025 data and an interactive chart that compares both plans in three different years.

What HMO and PPO mean

First, HMO stands for health maintenance organization. According to HealthCare.gov, an HMO usually limits coverage to doctors in its network, except in emergencies, and often asks you to choose a primary care doctor who coordinates referrals to specialists.

Second, PPO stands for preferred provider organization. A PPO also has a network, but it usually lets you see providers outside it, at a higher cost, and often without a referral. In exchange, however, PPOs tend to cost more. For example, according to the KFF 2025 Employer Health Benefits Survey, the average PPO premium was $9,818 for single coverage, compared with $9,325 for all plans.

Common structures, so they are not promises about every plan. Therefore, always read the plan’s own documents.

PPOs are also far more common at work. In fact, in 2025 KFF found that 46% of covered workers were in a PPO, 33% in a high-deductible plan, 12% in an HMO and 9% in a POS plan, which combines features of both.

Check the network before the price

A network is the group of doctors, hospitals, labs and pharmacies that have agreed to the plan’s prices. Asking a doctor’s office whether it “takes” a big insurance company is not enough, because one insurer may offer several networks. So use the exact plan name when you check:

• Your doctors: first, your primary care doctor and any specialists you see.
• Hospitals: also, the hospital and urgent care you would realistically use.
• Mental health: in addition, therapists and other providers you rely on.
• Medicines: finally, your pharmacy and whether each drug is on the plan’s list, called the formulary.

Also, directories can be out of date, and a listed doctor may not be taking new patients. Therefore, call the office and confirm with the plan before you enroll.

Referrals and prior authorization are different

First, a referral is a note from your primary care doctor allowing you to see a specialist, which many HMOs require. Prior authorization, by contrast, is the insurer’s own approval before certain treatments, tests or drugs, as HealthCare.gov explains. In other words, a PPO may skip referrals and still require prior authorization for an MRI or an expensive medicine.

Compare the full yearly cost

Of course, the premium is easy to notice because you pay it every month. However, it is only one part of what a plan costs. For example, here is the original Money Behaves example, with figures for illustration only:

Hypothetical figures. Real plans vary widely, so use your own plan documents.

Then, in a quiet year with four doctor visits, the HMO would cost about $3,220 and the PPO about $4,380. By contrast, in a very bad year, when you reach the out-of-pocket maximum, the HMO would cost about $9,620 and the PPO $11,260, before any out-of-network care. So in this example the HMO is cheaper in both cases, as long as your care stays in its network.

Compare your plans in three years

Next, use the chart below to compare two plans in a quiet year, a likely year and a bad year. As a result, you can see whether the cheaper plan changes depending on how much care you need.

How to use it: for each plan, enter the monthly premium you pay, the deductible, the coinsurance, the out-of-pocket maximum and the primary care copay from its Summary of Benefits and Coverage. Then enter your expected medical bills in a likely year. Also, the example already shows the two plans above.

Then try lowering the PPO deductible or raising the HMO premium. As a result, you will see that the winner can flip between scenarios, which is exactly why a single number is never enough.

Out-of-network care can still be expensive

The ability to see out-of-network doctors is the clearest advantage of a PPO, but it is rarely cheap. For example, suppose an out-of-network doctor bills $300 and the PPO only recognizes $200 as the allowed amount. Then your coinsurance applies to the $200, and the doctor can still bill you for the remaining $100, a practice known as balance billing.

Fortunately, the federal No Surprises Act protects you in many emergencies and in some hospital situations, as the CMS explains. However, those protections do not turn every planned out-of-network visit into in-network care.

Which plan fits which person?

An HMO may fit well when your preferred doctors and hospital are in its network, you mostly need care close to home and you are comfortable with a primary care doctor coordinating your care. For many people, therefore, that combination brings lower premiums and predictable costs.

A PPO, on the other hand, can be more useful when a specialist you need is only in its network, when you want to see specialists directly or when you travel or live in different places during the year. Also, check your medicines: a drug in a cheaper tier on one plan can easily outweigh the premium difference.

Use the plan documents to decide

Fortunately, every plan must give you a Summary of Benefits and Coverage, a standard document that makes plans easier to compare. So for each option, write down:

• Costs: first, premium, deductible, copays, coinsurance and out-of-pocket maximum.
• Network: then, whether the network includes your doctors, hospital and pharmacy.
• Medicines: also, each drug’s tier and price.
• Rules: in particular, referral and prior authorization requirements.
• Travel: finally, what the plan covers outside your local area.

Finally, keep in mind that a bad year needs cash, too. For example, a plan with a $6,500 out-of-pocket maximum is far easier to live with if you have an emergency fund, as explained in What Is a High-Yield Savings Account? Similarly, the same logic applies to other deductibles, as shown in How Does a Renters Insurance Deductible Work?

Common questions

Is an HMO always cheaper than a PPO?

Usually the premium is lower, but not always the total cost. For example, if you need out-of-network care or an expensive drug the HMO covers poorly, the PPO can end up cheaper.

Can I see a specialist without a referral in an HMO?

Often not, except in emergencies and some specific cases, such as certain women’s health services. So check your plan’s rules before booking.

What is a POS plan?

In short, a point-of-service plan mixes both designs. Typically, it uses a primary care doctor and referrals like an HMO, but it may also cover some out-of-network care like a PPO, at a higher cost.