Legal Definitions - preferred-provider organization

Preferred-Provider Organization (PPO)

A Preferred-Provider Organization (PPO) is a type of health insurance plan that contracts with a network of healthcare providers, such as doctors, hospitals, specialists, and pharmacies. These providers agree to offer medical services to the plan's members at negotiated, discounted rates. Members of a PPO plan have the flexibility to choose any healthcare provider they wish, but they pay less out-of-pocket when they use providers within the PPO's established network. If a member chooses to receive care from a provider outside the network, the plan will typically still cover a portion of the cost, but the member will be responsible for a significantly higher share of the bill.

• Example 1: Routine Annual Check-up

  Sarah needs her annual physical examination. Her PPO health insurance plan provides an online directory of primary care physicians who are part of its network. Sarah selects a doctor from this list. Because this doctor has an agreement with her PPO, Sarah only pays a small co-payment for the visit, and her insurance covers the majority of the remaining cost at the pre-negotiated, lower rate.

  This example illustrates how using an in-network provider under a PPO results in lower out-of-pocket costs for routine care due to the discounted rates the PPO has negotiated with its preferred providers.

• Example 2: Specialist Care and Out-of-Network Choice

  David injures his knee and needs to see an orthopedic surgeon. His PPO plan offers a list of in-network orthopedic specialists who provide services at a reduced cost. However, David's friend highly recommends a specific surgeon who is not part of David's PPO network. If David chooses an in-network surgeon, his insurance will cover a large percentage of the cost after his deductible. If he opts for the out-of-network surgeon, his PPO will still cover some portion, but David will have to pay a much higher deductible and a larger percentage of the overall bill himself.

  This example demonstrates the flexibility of a PPO, allowing members to choose providers outside the network, but it also highlights the financial incentive to stay within the preferred network to minimize personal expenses.