APPLIES TO: All plans

When I picked a health plan for my family, the card I chose said PPO. I knew what that meant for which doctors we could see. I had no idea what it meant if one of us got seriously sick.

I felt like it was important to spend a few issues on the basics. The more I talk to people in healthcare who truly want to make change happen, the more I believe we have to start with the current state before we can fix it.

HMOs get a bad reputation because of the complexity of the rules patients have to adhere to in order to receive care. What is interesting is that the definition of how an HMO works, and what coverage it provides, has been part of federal law since 1973. Each state actually licenses and regulates HMOs. [1] [2] Now, what those laws mostly define is how an HMO is built, such as who provides the care and how the company is licensed. They don’t usually decide whether a patient needs a referral to see a specialist, or which tests and procedures need approval before the plan will pay. Each plan sets those rules itself, [1] [3] and that information is hard to see when you’re choosing a plan. When you’re comparing plans, the most important question is which care will be covered and which care will need a referral or prior auth first.

Most of us know our health plan by the letters printed on the card: HMO, PPO, maybe EPO or POS. In my experience, most people never get an explanation beyond “the PPO costs more but gives you more choice,” and many never choose the plan type at all, because it’s the plan they were handed at work.

Essentially, your plan or your patient’s plan describes one thing: what doctors the plan will pay for, and whether you need a referral to see a specialist. What is still missing is how many tests, scans, and surgeries will get paid, or which services need prior authorization and what the plan needs to see before it says yes. Whether the doctors on that network list are actually available is its own story, and I’ll get to it.

In 2026, 50% of covered workers were enrolled in a PPO, 29% in an HSA-qualified plan, 12% in an HMO, and 8% in a POS plan. [8] KFF changed how it groups plans this year, so these numbers can’t be compared directly with earlier years but at least we see a new baseline. [8]

For those of you new to this space, the letters are partly legal categories. The Health Maintenance Organization Act of 1973 defined an HMO in federal law, and one of its requirements is that at least 90% of the physician services an HMO provides as basic services come through its own staff, medical groups, or contracted physicians. [1] Every state licenses HMOs, and many base their laws on a model act written by the National Association of Insurance Commissioners (NAIC). However, it’s important to note that this is about plan design and operational structure. Not about financial coverage limits. Some states use that model as a floor and may even add stricter rules. [2] [9] PPOs do not have a federal act and were developed through state insurance laws instead. [10]

When a state uses that model as a floor, it’s setting a minimum standard for how insurers have to operate. Some states go further. Texas, for example, requires HMOs to offer employees an out-of-network option when HMOs are the only coverage a large employer offers. [11] [12]

However, none of this settles the rules a practice deals with every day. There are “open access” HMOs where patients will still pick a primary care doctor but don’t need a referral to see a participating specialist. [3] Some states require HMOs to offer an out-of-network option. In Texas, when the only coverage an employer offers is through HMOs, the HMO generally has to offer employees a way to get out-of-network coverage, such as a point-of-service plan [11], and state rules apply this to large employers, which Texas defines as those with 51 or more employees. [12] [13] Two plans with the same label can also behave very differently. As KFF Health News put it, one PPO may offer very different out-of-network coverage than another. [14]

If the plan is self-funded by an employer, even that changes. Self-funded employer plans generally fall outside state insurance law [15], so the “PPO” on the card usually describes the network the plan rents, but it’s not a state-licensed product.

In some of the practices I’ve worked with, we’ve seen a few patients with PPO plans who needed a referral to see a specialist. It’s rare, but it shows that the letters on the card don’t guarantee the rules.

Again, it still comes back down to the plan documents, which actually set your rules. And these documents are hard to find, hard to read, and don’t always give enough detail to understand how a diagnosis of stage 4 melanoma will be managed.

Medicare Advantage defines its plan types in federal rules. Medicare’s comparison tool lists HMOs, PPOs, private fee-for-service plans, special needs plans, and medical savings account plans, [16] and there is no EPO. Under those rules, a PPO has to pay for covered benefits whether or not the patient stays in the network, and referrals are one of several tools a plan may use, not a requirement. [17]

A referral and a prior authorization are two different things. A referral is a primary care doctor telling the plan that the patient needs to see a specialist. A prior authorization is the plan deciding ahead of time that a specific test, drug, or procedure is medically necessary. An HMO patient can need both for the same care, and a PPO patient can typically skip the referral and still need the approval.

A PPO gives you more freedom to choose your doctors, but it doesn’t free you from needing prior authorization. When I read the summary for my own family’s PPO, “no benefits if not preapproved” appeared next to imaging, hospital stays, home health care, medical equipment, and more. When you compare plans, the plan type answers the question of which doctors you can see. The prior authorization list answers the question of which care needs permission first, and that list is almost impossible to get at the level of detail I would want when picking a plan for myself.

It’s also important to understand that just because you get a prior authorization approved doesn’t mean the payer will pay for it. Even if a service or supply is authorized, eligibility rules and benefit limits still apply. [18] I will do more issues on all of this in detail because to truly fix healthcare we need to understand all of the nuances.

HMOs exist for real reasons. Insurers say HMO plans offer value through coordinated care and lower out-of-pocket costs, [19] and PPOs do tend to cost more. According to KFF’s 2026 survey of employers, the average PPO premium was $10,272 for single coverage, compared with $9,804 across all plans. [8] For many families, a lower premium in exchange for a referral rule is a reasonable trade, as long as they know they’re making it.

What this tells me is that one of the first things we’d have to fix is the label itself. Physicians and patients make real decisions based on three letters that, legally, promise very little. If we want people to be able to compare plans, the rules that actually decide care, which services need a referral and which need prior auth, would have to be as easy to find as the plan type printed on the card.

Physicians and practice leaders: at the start of each plan year, check three things for every patient: the plan type, whether that specific plan requires referrals, and its prior auth list. Don’t assume any of them from the letters on the card.

Employers: ask your insurer or administrator what the label on your plan actually means in your plan documents, including whether referrals are required and where the prior auth list lives.

Before enrolling, ask for three things: the Summary of Benefits and Coverage, the prior auth list, and, for employer plans, the summary plan description, which the plan has to give employees free of charge. [20] If a plan can’t show you its prior auth list before you sign up, that tells you something too.

“Does this plan require referrals, and where can I see its prior authorization list?”

UnitedHealthcare will offer 547 more Medicare Advantage HMO plans in 2027 than it did this year, while cutting its plans overall, according to an analysis by the investment firm Stephens. Next week I’ll explain what that means for practices on January 2, when patients show up with new cards and no referral on file.

If you’ve seen a PPO ask for a referral, reply and tell me what happened.

Gavari does not take money from health insurers or health plans. If an issue has a sponsor, it is labeled at the top.

This is general education about how health coverage works. It is not insurance, legal, or medical advice. I do not sell insurance or recommend plans.

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