What are HMOs and PPOs? How do they differ from each other and from traditional health insurance companies?

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justaguide eNotes educator| Certified Educator

HMO is the abbreviation of Health Maintenance Organizations. An HMO is a group of doctors, hospitals, laboratories, and other institutions related to the field of health care. A HMO charges an annual fee from the person who joins it and this is used to pay for all the work done by those that form part of the HMO. This type of health insurance has a lot of restrictions and patients who are likely to require a lot of medical attention are usually not allowed to join.

PPO stands for Private Provider Organization. This consists of a group of hospitals, labs, private doctors and insurance companies. In a PPO, in addition to the annual premium, patients usually are required to pay a part of the medical expenses incurred which is known as co-payment. PPOs offer more freedom than an HMO and are suited for those who can afford it.

A traditional health insurance company charges an annual premium and people can take up a plan that they offer which is appropriate for them. Insurance providers pay for the medical expenses incurred up to the amount that the policy covers. The premium depends on many factors related to the health of those taking the insurance, age and the facilities that the insurance company is required to pay for.