The October 2013 launch of the health insurance marketplace found many Americans scrolling through lists of health plans, puzzling over industry-specific terms, trying to decide which plan to choose. The acronyms HMO and PPO are tacked onto many plans in the offerings. Both are types of health insurance that use a managed care approach to delivering health care. Under the Affordable Care Act (ACA), all health insurance policies must cover 10 essential health benefits. The difference between an HMO and a PPO is in their costs and healthcare options.

Health Maintenance Organization (HMO)

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An HMO usually is the least expensive type of health insurance. Premiums are low, but your options are limited. These are prepaid plans — you pay a premium and the HMO provides your care. You must select a primary care physician (PCP) from those in the organization. This may be a doctor specializing in internal medicine, a family doctor, or a pediatrician if the insured is a child. Your PCP will oversee your health care. To see a specialist, you must get a referral from your primary doctor. If your PCP determines you need a specific procedure, you generally are not required to get pre-authorization from your insurance company.

Your out-of-pocket costs will be low with this plan, provided you only seek service within the HMO’s network. Usually a small co-payment, commonly between $10 and $35 for a doctor visit, is required. Out-of-network care is not covered, except in emergencies. This is an important consideration if you frequently travel out of your HMO’s area.

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Preferred Provider Organization (PPO)

While premiums for a PPO plan will be higher than an HMO plan, you will have more health care options with this type of plan. You are not required to select a PCP; you may visit any doctor, hospital or facility. Your out-of- pocket costs, either co-insurance or co-payments, will be much lower if you choose a provider within your PPO network. PPOs do not require you get a referral from your doctor if you wish to see a specialists, but some specialists may require a referral. Many procedures will require pre-authorization from the insurance company. You will find a toll-free customer service number on your insurance card. You must call this number to get pre-authorization for a procedure.

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Gillian Burdett is a freelance writer covering all things home and living. Her work can be found on