HMO Vs. PPO Vs. POS: What’s the Difference

Understanding HMO plans.

HMO stands for ‘Health Maintenance Organization’. In general, HMOs are some of the most affordable types of health insurance plans available. An HMO plan will often feature fixed copays for doctor’s appointments, along with lower insurance premiums and deductibles compared to other health insurance options. 

This popular type of insurance plan makes up around 16% of employer health plans and nearly 50% of marketplace plans, according to Insurance.com. Yet, in exchange for lower costs, HMOs tend to offer less flexibility where medical care is concerned. 

With an HMO plan, you must choose an in-network primary care provider, also known as your PCP. Anytime you need to visit a specialist, your PCP must provide you with a referral to a provider in your network. If you opt to receive care from a specialist outside of your network, you’ll most likely have to pay out of pocket.

Understanding PPO plans.

PPO is an abbreviation for ‘Preferred Provider Organization’. In many cases, PPO premiums tend to be more expensive than both HMO and POS health insurance plans. Yet, in exchange for the higher cost, you receive more flexibility when it comes to your medical care.

With most PPOs, you do not have to choose a primary care physician. You also don’t need to visit a PCP first for a referral if you want to see a specialist. And while you’ll still have a preferred network of providers, you can typically opt to see doctors and specialists outside of that network with a PPO, if you wish. Just keep in mind that your PPO plan will cover a smaller portion of medical bills from providers that aren’t inside your preferred network. 

Among employer-provided health plans, PPOs are the most popular choice. In 2022, nearly half (49%) of covered workers were enrolled in a PPO, according to the Kaiser Family Foundation.

Understanding POS plans.

POS stands for ‘Point of Service’. In some ways, you can think of this plan as a hybrid between an HMO and a PPO. 

With a POS plan, you will still need to select a primary care provider. Your PCP will also need to provide you with referrals anytime you wish to see a specialist for medical care. However, there is coverage available with a POS for out-of-network doctors when necessary (albeit at a higher rate). 

The premium cost of POS plans tends to be less expensive as well—often around the cost of an HMO though sometimes slightly higher or lower depending on the insurance provider. In 2022, 9% of covered workers enrolled in a POS plan, according to the Kaiser Family Foundation.

Cost difference between POS and HMO and PPO.

If you’re trying to decide whether your small business can afford to provide employee health care benefits, it’s important to understand the cost of different insurance options. Every situation is different, so you’ll need to do your own research. However, understanding the costs that other businesses pay can be helpful. 

Below are the 2022 average annual employee and employer health insurance premium contributions, according to the Kaiser Family Foundation. 

How to choose between an HMO, POS, or PPO.

There are several key questions to consider when you decide which type of insurance plan to offer your employees. 

What can you (and your employees) afford? 

As a small business owner, you must typically pay at least 50% of health insurance premiums for eligible employees if you offer this benefit to your staff. In 2022, most covered workers contributed 17% toward their health insurance premiums on single-coverage plans and 28% for family coverage, according to the Kaiser Family Foundation. 

However, covered employees working at small businesses contributed an average of 36% toward family health insurance premiums in 2022, and 31% were expected to contribute more than half of the premium cost for family plans.

What type of coverage do you (and your employees) prefer? 

Is it important to you and your employees to have the flexibility to see specialists without a referral from a primary care physician? Do you and your workers want the freedom to visit out-of-network providers, without having to pay out of pocket for those services? Your location and your team’s preferences may have a meaningful impact on the type of healthcare coverage plan you select for your small business. 

Bottom line

As a small business owner, the federal government does not require you to offer health insurance to your employees if you have fewer than 50 full-time employees. Yet there are benefits to offering health insurance benefits to your employees, including certain small business tax credits and the potential to attract quality talent to your team. 

If you decide to include health insurance benefits as part of your overall compensation package for employees, take the time to research your options. It’s better to take your time and find the right solution up front than to have to switch health insurance plans for your company at a later date because you’re unhappy with your decision.