The real cost of a $0 healthplan
Understanding the cost differences between HMO and PPO plans
When choosing between Medicare Advantage plans, many beneficiaries focus on the attractive $0 monthly premiums that both HMO and PPO plans often advertise. While these zero-premium options make both plan types appear financially equivalent at first glance, the real cost differences emerge when you actually use your healthcare benefits throughout the year.
The fundamental trade-off between these two plan types comes down to cost versus flexibility, and understanding these differences can help you make the right choice based on your healthcare needs and budget.
In this article
The Premium Paradox: Why $0 isn't the whole story
Both HMO and PPO Medicare Advantage plans frequently offer $0 monthly premiums, with approximately 67% of Medicare Advantage plans charging no premium beyond the standard Medicare Part B premium of $185 per month in 2025. However, this upfront similarity masks significant differences in what you’ll pay when you actually visit doctors, specialists, or need medical procedures.
The reason many plans can offer zero premiums is that insurance companies build their revenue model around the cost-sharing structure—copays, coinsurance, and deductibles—rather than monthly fees. This is where the HMO versus PPO distinction becomes financially meaningful. Keep in mind though, that like everything, there are exceptions; you will find HMO plans that require a monthly premium and you will find $0 monthly premium PPOS plans.
Where HMOs Save You Money
HMO plans consistently offer lower copays and coinsurance across virtually all types of medical services. This cost advantage stems from the managed care approach that HMOs use. By requiring members to stay within a defined provider network and obtain referrals from primary care physicians for specialist visits, HMOs can better control costs and negotiate more favorable rates with healthcare providers.
The average out-of-pocket maximum for HMO enrollees is approximately $3,965, significantly lower than other plan types. This maximum represents the most you could potentially spend in a year for covered services, providing important financial protection for those with chronic conditions or unexpected health issues.
Additionally, projected out-of-pocket costs for Medicare Advantage plans overall are 18-24% lower than traditional fee-for-service Medicare, with HMOs typically representing the most affordable option within the Medicare Advantage category.
The PPO Premium: Paying for Flexibility
PPO plans command higher out-of-pocket costs because they provide substantially more flexibility in healthcare choices. You can see any provider that accepts Medicare without needing referrals, and you have some coverage for out-of-network providers. This freedom comes at a price, with PPOs typically having higher copays for both primary care and specialist visits.
The average combined in-network and out-of-network out-of-pocket limit for PPO enrollees is $8,634 for local PPOs and $10,728 for regional PPOs. This higher ceiling means that if you have extensive healthcare needs, a PPO could potentially cost you significantly more than an HMO over the course of a year.
PPOs also offer larger provider networks, giving you access to more doctors and hospitals without the coordination requirements that HMOs impose. You won’t need to establish a relationship with a primary care physician as a gatekeeper, and you can self-refer to specialists as needed.
Real-World Cost
To illustrate these differences, consider two difference healthcare usage scenarios-
Light Healthcare User (2 doctor visits per year)
With an HMO plan charging typical $15 copays for primary care visits, your annual out-of-pocket costs would be approximately $30. A comparable PPO plan with $25 primary care copays would cost $50 annually. While the $20 difference may seem modest, it represents a 67% increase in costs for the same level of care.
Heavy Healthcare User (monthly visits plus 3 specialist consultations)
An HMO plan with $15 primary care copays and $35 specialist copays would result in annual costs of approximately $285 (12 primary care visits at $15 each plus 3 specialist visits at $35 each). The same usage pattern under a PPO plan with $25 primary care copays and $50 specialist copays would cost $450 annually. This represents $165 in additional annual costs, or 58% more than the HMO option.
Heavy Healthcare User (major illness or a serious surgery)
When considering Medicare Advantage plans in the context of a major illness such as cancer or a serious surgery, the financial implications shift dramatically. In these worst-case scenarios, the core protection comes from each plan’s annual out-of-pocket maximum, which serves as a critical safety net once medical costs escalate.
Suppose someone undergoes treatment for cancer, which often involves regular specialist visits, expensive tests, hospital stays, and prescription drugs. Similarly, a major surgery—like a hip replacement—can involve hospitalization, follow-up rehabilitation, and multiple provider visits over months. Under both HMO and PPO Medicare Advantage plans, the insured individual would quickly reach the plan’s out-of-pocket maximum due to frequent utilization of high-cost medical services.
For 2025, the typical HMO out-of-pocket maximum is about $4,000, while a PPO might set this cap at $6,500, or even higher if out-of-network care is used. This means that regardless of the number or complexity of treatments, the enrollee would not pay more than this amount in one year for in-network covered services. Once these limits are reached, the plan covers 100% of eligible remaining expenses until the end of the calendar year.
As an example, let’s imagine two patients diagnosed with a major illness:
HMO Patient: The person requires ongoing chemotherapy, specialist consultations, several inpatient hospitalizations, and regular imaging. After a few months, copays and coinsurance have accumulated to the plan’s $4,000 maximum. For the rest of the year, all in-network covered care is paid for by the plan, providing significant financial certainty and protection.
PPO Patient: Facing the same situation, another patient may choose to see providers both in-network and out-of-network for access to preferred oncologists, specialty hospitals, or innovative treatments. Since out-of-network costs are much higher and accrue separately, this person might reach an out-of-pocket max as high as $10,000 if they receive care outside the network, depending on the plan’s rules. For in-network care, their cap would fall closer to $6,500.
A major illness demonstrates the importance of these limits—and the difference in financial impact.
However, there is a critical concern with HMOs: network restrictions. If someone on an HMO is diagnosed with a serious condition and discovers that the needed specialist—such as a particular oncologist or surgeon—is not included in their plan’s network, their options are severely limited. HMOs generally do not cover out-of-network care, except in emergencies. This means that if the care is not provided by an approved in-network provider, the patient is likely responsible for the entire cost themselves, and these expenses do not count toward the plan’s annual out-of-pocket maximum. In such cases, yearly medical costs could soar—from tens to potentially even hundreds of thousands of dollars for complex treatments—leaving the patient financially exposed.
Network Size and Access Trade-offs
The lower costs in HMO plans come with some restrictions that may not suit everyone’s preferences or needs. HMO plans require you to select a primary care physician who coordinates your care and provides referrals to specialists. This gate-keeping function helps control costs but can create delays if you need to see a specialist quickly or prefer to manage your own healthcare decisions.
PPO plans eliminate the referral requirement and typically offer substantially larger provider networks. This means you have more choices when selecting doctors and can often get appointments more quickly with specialists. If you have established relationships with specific doctors or prefer certain hospitals, a PPO plan is more likely to include them in the network or provide coverage for out-of-network visits.
Making the Financial Decision
The choice between HMO and PPO Medicare Advantage plans ultimately depends on how you value the trade-off between cost savings and healthcare flexibility. If minimizing out-of-pocket expenses is your primary concern and you’re comfortable with managed care coordination, an HMO will typically provide better financial protection.
However, if you prioritize having unrestricted access to providers and specialists without referral requirements, the additional cost of a PPO plan may be justified for your situation. The key is to honestly assess both your expected healthcare needs and your preferences for managing medical care.
For individuals with chronic conditions requiring regular specialist care, the referral requirements in HMO plans might create enough inconvenience to make the higher PPO costs worthwhile. Conversely, generally healthy individuals who mainly need routine primary care may find that HMO plans provide excellent value with minimal restrictions on their actual healthcare usage patterns.
Both plan types offer the same core Medicare benefits and often include additional perks like dental, vision, and prescription drug coverage. The decision comes down to whether the extra flexibility offered by PPO plans justifies their higher cost structure when you actually need medical care throughout the year.
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