NCPA - National Center for Policy Analysis

Preferred Provider Organizations More Popular Than HMOs

January 22, 2001

Preferred provider organizations (PPOs) were once seen as a transitional health care mechanism rather than part of a long-term solution. Proponents argue PPOs have evolved into the preferred choice for employees, employers and physicians alike by combining the cost-effectiveness of managed care with the choice and flexibility of a more open system.

Although both are considered "managed care," PPOs differ from health maintenance organizations (HMOs) in that participating physicians contract with the PPO to provide services to their members at reduced rates. HMOs typically restrict the choice of physicians to only those employed by them but agree to provide all needed care for a covered group at a fixed rate per person per year. Physicians working with a PPO charge only for care actually provided to their enrollees.

According to a new report by an industry organization, the number of PPO-eligible employees in America rose 8.6 percent to 106.8 million in 1999. That was the first year the number of PPO-eligible enrollees surpassed the number of people enrolled in HMOs, according to a new report.

Other key findings of the report:

  • Employees eligible to use PPO services increased 10.3 percent in 1998 from 89.1 million to 98.3 million eligible employees.
  • The number of large employers offering PPOs jumped 70 percent that year.
  • PPOs captured 43 percent of the market among people covered by health insurance in 1999.

A total of 104.5 million people were members of HMOs in 1999, either through Medicare, Medicaid, a point-of-service plan, a self-funded plan or the Federal Employee Health Benefits Program.

Source: "PPO Market Report: 2000 Edition," American Association of Preferred Provider Organizations.


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