PPO is an acronym for Preferred Provider Organization. A PPO is a health insurance product that allows members to visit any doctor, specialist or hospital. PPOs do not require a primary care physician (PCP) to coordinate care or treatment, and referrals are not required, according to Cigna HealthCare. Members pay less for seeing in-network providers, but have the freedom of seeing out-of-network providers at a higher cost.
Background
The PPO product is the product of choice, currently surpassing enrollment in health maintenance organization (HMO) plans, with more than half of people participating in private health care benefits enrolled in a PPO plan, according to a 2004 "Health Affairs" journal article. This article states that the popularity of the PPO product is mainly the result of the managed care backlash against the HMO product, with members favoring the less restrictive features of a PPO and ability for members to select health care providers. PPO plans came into favor with employers due to the flexibility in creating customized employer-based PPO plans as opposed to the more strict HMO plans. Employers rejected the off-the-shelf, pre-packaged HMO plans in favor of PPO plans.
Definition
PPO plans are a benefit option offered through a contracted network and customized in different ways, as stated in a 2004 "Health Affairs" journal article. PPO plans come in different shapes and sizes---as locally sponsored networks formed to contract with self-funded employers, third party administrators (TPAs), and insurance carriers who offer national networks. According to a 2006 "Health Affairs" journal article on trends, one third of covered workers are enrolled in a PPO plan that does not have a deductable, while 8 percent are enrolled in plans with $1,000 or higher deductibles. Enrollees in smaller plans (1 to 199 workers) have higher deductibles than those in larger (200 or more workers) plans. Out-of-pocket expenses, paid by members, include deductibles, co-insurance (payment to provider based on percentage of bill) or copays.
Employer Benefits
The flexibility of and customization in creating a health insurance plan is one of the most realized benefits of PPO plans with more options in creating product design and financing alternatives. According the American Association of Preferred Provider Organizations (AAPPO), PPO plans provide a greater choice in providers and services through both in-network and out-of-network selection.
Member Benefits
According the AAPPO, PPO plans do not override patient care decisions made by providers, instead working with providers to deliver the best patient care available. Costs are low for members when they see in-network providers. Members can consult with specialists either in or outside the PPO network, and seeing a PCP is not required.
Disadvantages
The AAPPO states that the PPO health care model is effective in separating provider quality mechanisms from provider reimbursement levels, resulting in balanced delivery and financing of medical care, but not always at the lowest possible cost. An additional downside to PPO plans is that PPO network developers do not hold providers accountable in improving patient care, with the belief that this is out of scope or out of their control. If members see out-of-providers, costs are high for the member and co-payments and/or co-insurance are higher than traditional HMO plans.
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