What is a PPO Health Plan and How Does it Work?

What Is a Preferred Provider Organization (PPO)?

A preferred provider organization (PPO) is a popular health insurance plan designed for individuals and families. PPOs involve networks that are made up of contracted medical professionals and health insurance companies. Health care facilities and practitioners, known as preferred providers, offer services to the insurer's plan policyholders at reduced rates. Plan participants receive the maximum PPO benefit when they visit in-network health care professionals and are also offered coverage when they see out-of-network providers.

KEY TAKEAWAYS

• A PPO or preferred provider organization is a type of managed care health insurance plan.

• PPO medical and health care providers are called preferred providers.

• The costs associated with PPOs include higher insurance premiums, copays, and deductibles.

• Choosing between a PPO and an HMO generally involves weighing one's desire for greater accessibility to doctors and services versus the cost of the plan.

• PPO plans are more comprehensive in their coverage and offer a wider range of providers and services than HMOs.

How Preferred Provider Organizations (PPOs) Work

A preferred provider organization is a managed-care network consisting of medical professionals and facilities, such as primary and specialty physicians, hospitals, and other health care professionals, who contract with insurance providers to render services to subscribed participants. These are plan participants or consumers who are covered by the insurer's health care plan.

Plans negotiate fees and schedules for services with health care professionals and facilities. As such, the agreed-upon rate is typically lower than their usual charges. In exchange for reduced rates, insurers pay the PPO a fee to access the network of providers.

PPO participants are free to use the services of any provider within their network. They are encouraged, but not required, to name a primary care physician, and don't need referrals to visit a specialist.

A PPO plan allows participants are also allowed to visit out-of-network facilities, usually at a higher cost. These charges are based on a reasonable and customary fee schedule. claims made by these health care providers exceed the reasonable and customary fees for services rendered, coverage may not apply or, most commonly, the excess charge is passed on to the patient.

One important point to note is the degree of flexibility associated with the higher cost of PPOs. These plans offer more options than others available on the market. PPO networks are typically large, with providers in many cities and states. Choosing a provider or accessing one in urgent situations provides value to participants.

PPO plans also travel from state to state offering, so if you travel for work or vacation in a different state than you reside, the PPO plan travels across state lines to provide you and/or your family health benefits.

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