Is a CDHP a PPO or HMO? How These Health Plans Relate
Clarify if a CDHP is a PPO or HMO. Understand the distinct financial and network structures that define your health insurance options.
Understanding health insurance terminology can be complex. This article demystifies Consumer-Driven Health Plans (CDHPs), Preferred Provider Organizations (PPOs), and Health Maintenance Organizations (HMOs), explaining their characteristics and relationships.
Understanding Consumer-Driven Health Plans
A Consumer-Driven Health Plan (CDHP) is a type of health coverage designed to encourage individuals to engage more actively in their healthcare decisions. These plans are typically characterized by a high deductible, meaning the insured person pays a substantial amount out-of-pocket before the insurance coverage begins to pay for most services. This structure aims to promote cost-conscious choices regarding medical care and services.
CDHPs are commonly paired with tax-advantaged savings accounts, such as Health Savings Accounts (HSAs) or Health Reimbursement Arrangements (HRAs). HSAs allow pre-tax contributions for qualified medical expenses, with unused funds rolling over annually and remaining portable. To qualify for an HSA in 2025, a high-deductible health plan must meet specific deductible and out-of-pocket maximum limits.
HRAs are employer-funded accounts where the employer sets limits on rollovers, and the funds are generally not portable if an individual leaves the company. Both HSAs and HRAs help individuals manage the higher upfront costs associated with a CDHP by using pre-tax funds for eligible medical, dental, and vision expenses. This financial design puts more control over healthcare spending directly into the hands of the consumer.
Understanding Preferred Provider Organizations
A Preferred Provider Organization (PPO) is a type of health insurance plan that offers flexibility in choosing healthcare providers. PPOs establish a network of doctors, hospitals, and other medical professionals who have agreed to provide services at negotiated, discounted rates. Plan participants receive the highest level of benefits when they utilize these in-network providers.
A notable feature of PPOs is the ability to seek care outside the established network. While this option is available, it typically incurs higher out-of-pocket costs for the insured individual. PPO plans generally do not require policyholders to select a primary care physician (PCP), nor do they usually need a referral from a PCP to see a specialist. This structure provides a broader choice of providers and direct access to specialized care.
Understanding Health Maintenance Organizations
A Health Maintenance Organization (HMO) operates with a more structured approach to healthcare delivery. HMO plans typically limit coverage to care provided by doctors and facilities within their specific network. Choosing providers outside this network is generally not covered, except in urgent or emergency situations.
Individuals enrolled in an HMO are typically required to select a primary care physician (PCP) within the plan’s network. This PCP then acts as a “gatekeeper,” coordinating all medical care and providing referrals to specialists when needed. Without a referral from the PCP, visits to specialists may not be covered by the plan. This model emphasizes integrated care and often focuses on preventive services to maintain overall health.
Distinguishing CDHPs from PPOs and HMOs
The relationship between Consumer-Driven Health Plans and Preferred Provider Organizations or Health Maintenance Organizations can be confusing. A CDHP describes a health plan’s financial architecture, defined by its high deductible and inclusion of a tax-advantaged savings account like an HSA or HRA. PPOs and HMOs, conversely, describe the network structure and how individuals access medical services.
A CDHP is not an alternative to a PPO or an HMO, but rather a design that can incorporate either network type. For example, a CDHP might use a PPO network, combining a high deductible with the PPO’s flexibility for out-of-network care and no PCP referral. Alternatively, a CDHP could use an HMO network, maintaining the high deductible while adhering to the HMO’s restrictions, such as in-network providers, PCP requirement, and specialist referrals. The high deductible and the associated savings account remain the defining characteristics of a CDHP, regardless of the underlying network.