How does a "preferred provider organization" (PPO) operate?

A preferred provider organization (PPO) operates by allowing members the flexibility to choose their healthcare providers. Members can see any healthcare provider they wish; however, they receive higher benefits—such as lower out-of-pocket costs—when they use providers that are part of the PPO network. This structure encourages members to utilize network providers while also giving them the freedom to seek care outside of the network if they choose.

This model contrasts with other health plan types, such as Health Maintenance Organizations (HMOs), that often require members to select a primary care provider and obtain referrals to see specialists, which is not a requirement in a PPO. Additionally, while preventive services are covered in PPOs, they generally offer broader coverage than just preventive care. Therefore, the flexibility of seeing both in-network and out-of-network providers while receiving different levels of benefits is what characterizes a PPO.