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What is a Preferred Provider Organization (PPO)? Definition & Benefits

By

Mitchell Grant

Updated October 07, 2025

Reviewed by

Thomas J. Catalano

Fact checked by

Rukshani Lye

Part of the Series

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What Is a Preferred Provider Organization (PPO)?

A PPO is a health insurance plan offering flexibility in choosing healthcare providers. PPO plans typically cover services both in and out of network without needing a primary doctor or referrals for specialists. PPOs provide comprehensive healthcare coverage, appealing to those who value accessible and varied healthcare options.

While there are higher premiums and other various costs associated with PPOs, there is a broader range of provider choices and services compared to HMOs. Healthcare 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 healthcare professionals and are also offered coverage when they see out-of-network providers.

Key Takeaways

A PPO is a type of health insurance plan with a network of preferred providers offering services at reduced rates.-
PPO participants have flexibility in choosing healthcare providers without needing referrals, even for out-of-network options.
Higher premiums, copays, and deductibles are tradeoffs for the flexibility and comprehensive coverage PPO plans offer.
PPOs are favored by employees for their extensive provider networks and freedom, despite higher costs compared to HMOs.
PPO plans traditionally have been popular for their flexibility, but require careful cost considerations due to potentially higher out-of-pocket expenses.

Understanding PPO Networks: Operations and Flexibility

A preferred provider organization is a managed-care network of medical professionals and facilities, like primary and specialty doctors, hospitals, and other healthcare providers, who work with insurance companies to offer services to participants. These are plan participants or consumers who are covered by the insurer's healthcare plan.

Plans negotiate fees and schedules for services with healthcare 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. Subscribers may go out of network for coverage, but it often comes at a higher cost.

Fast Fact

PPOs may be sponsored by a particular insurance company, one or more employers, or some other type of organization.

Evaluating the Financial Aspects of PPO Plans

PPOs have several costs, and their premiums are usually higher than those of other insurance plans. PPO plans tend to charge higher premiums because they are costlier to administer and manage. Participants are generally responsible for copayments, which are paid directly to the provider at each visit. There are also deductibles that patients must meet before the plans start kicking in and paying claims in full.

As noted above, plan 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. If healthcare provider claims exceed the reasonable fees for services, the patient may need to pay the extra cost.

One important point to note is the degree of flexibility associated with the higher cost of PPOs. PPO plans offer more options than other plans on the market. PPO networks are typically large, with providers in many cities and states. Choosing a provider or getting quick access in emergencies is beneficial for participants.

Important

PPOs and HMOs are common, but they don't cover the entire health insurance market. Other arrangements include exclusive provider organizations (EPOs), which are managed-care plans where services are covered only if you use doctors, specialists, or hospitals in the plan’s network (except in an emergency). Point of service (POS) plans involve lower fees for using providers that belong to the plan’s network. POS participants can go out of network but need referrals to see a specialist.

Comparing PPOs and HMOs: Key Differences and Decision Factors

Unlike PPOs, health maintenance organization (HMO) plans require you to get healthcare services from assigned network providers. The insured must first choose a PCP from the network, and the PCP serves as the first point of contact for all health issues and provides referrals to specialists.

As noted above, PPO plans charge higher premiums than almost every other plan for the convenience, accessibility, and freedom they offer. This means you have a wider choice of hospitals and doctors. Plans with the lowest/fewest out-of-pocket expenses, such as those with low deductibles and low copayments, have higher premiums. The elevated premium cost is due to the insurer absorbing more of the associated costs. Conversely, lower-premium alternatives translate into higher out-of-pocket costs for the insured and lower costs for the insurer.

PPO plans come with more comprehensive coverage, including many services that other managed-care programs might exclude or for which they would charge an additional premium.

PPO plans have historically been the preferred choice among employer group participants. However, today, participants want more options for managed healthcare. Therefore, many employers offer HMO plans, among others. Because HMO premiums are less expensive, some participants favor HMO plans for their affordability, although services and freedoms typically associated with HMO plans are often restricted.

How Do PPO Deductibles Work?

A health insurance deductible is an amount you must pay out of pocket for medical services each year; after you've met it, your insurance coverage kicks in. PPO plans may have two different annual deductibles. One applies to providers in the PPO network, and the other—usually a larger sum—to providers outside the network. The latter is larger because the PPO wants to encourage you to stay in-network, using its preferred providers.

What Are Disadvantages of PPO Plans?

PPO plans tend to be more expensive than other managed-care options. They typically have higher monthly premiums and out-of-pocket costs, like deductibles. You often have both coinsurance and copays. This is the tradeoff for the flexibility PPOs provide, allowing you to use providers both within and outside the PPO network without needing referrals.

The costs for coinsurance and deductibles can be different for in-network and out-of-network providers and services. Some may find it onerous to have more responsibility for managing and coordinating their own care without a primary care doctor.

What Is the Difference Between a PPO and a POS?

The biggest difference between PPO and POS plans is generally flexibility. Both plans cover you whether you use providers and facilities in or out of the network. However, a POS requires you to have a primary care physician and get referrals from them if you want to see a specialist or anyone else. PPOs don't. Costs are another consideration. PPOs tend to be more expensive than POS plans—the premiums are higher, and they usually come with deductibles that must be met before your coverage begins.

The Bottom Line

PPOs offer flexibility, such as the ability to see any provider within the network and the lack of requirement for referrals to visit specialists.

There are certain trade-offs to be considered with choosing between PPOs and HMOs, particularly with accessibility and cost. PPOs offer more comprehensive coverage compared to HMOs, which extends to a broader range of providers and services. However, PPOs tend to cost more with higher insurance premiums, copays, and deductibles. Unlike HMOs, PPOs offer out-of-network options, which adds to the cost factor of the plans.

It's important to weigh your individual healthcare needs and financial situation when deciding on a PPO.

Article Sources

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