Preferred Provider Organization (PPO): What It Means for Employers

What it means in practice

What the term means. HealthCare.gov describes a PPO as a type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. A network is the facilities, providers and suppliers the plan has contracted with. A preferred provider is one with a contract to provide services at a discount; the HealthCare.gov glossary adds that some plans also have "participating" providers whose discount may be smaller, or a "tiered" network in which some providers cost more. The defining feature is choice: members can see any provider, but the plan pays more when they stay in network.

How cost sharing works. The plan sets an allowed amount, the maximum it will pay for a covered service, also called an eligible expense or negotiated rate. The member first pays the deductible, the amount paid for covered services before the plan starts to pay (except free preventive services), and then a copayment (a fixed amount, like $30) or coinsurance (a percentage, like 20%). PPOs usually set two schedules. HealthCare.gov gives 20% as an in-network coinsurance example and 40% as an out-of-network example, and says out-of-network coinsurance and copayments usually cost more. A PPO may also set a separate out-of-network deductible; the plan's SBC shows its actual figures.

Balance billing. Balance billing is when a provider bills the patient for the difference between its charge and the allowed amount. HealthCare.gov says a preferred provider may not balance bill for covered services. An out-of-network provider may, unless the No Surprises Act or a state law applies. HealthCare.gov also lists what the out-of-pocket limit does not include: premiums, non-covered services, out-of-network care, and costs above the allowed amount.

The out-of-pocket maximum. Public Health Service Act section 2707(b) requires a non-grandfathered group health plan to keep annual cost sharing within the limit set under ACA section 1302(c)(1). Under 45 CFR 156.130, the limit is indexed each year and the family limit is twice the self-only limit. CMS guidance dated January 29, 2026 sets $12,000 self-only and $24,000 other than self-only for 2027, up from $10,600 and $21,200 for 2026. ACA FAQs Part XXVII says the requirement reaches self-insured and large group plans, and that the self-only limit applies to each individual even in family coverage. For a PPO, the key rule is 45 CFR 156.130(c): out-of-network cost sharing is not required to count toward the limit. ACA FAQs Part XXI adds that a plan may count it, but is not required to.

PPO versus other plan types. HealthCare.gov lists four common network designs. A health maintenance organization (HMO) usually limits coverage to providers who work for or contract with it and generally will not cover out-of-network care except in an emergency. An exclusive provider organization (EPO) covers services only in network, except in an emergency. A point of service (POS) plan charges less in network and requires a referral from a primary care doctor to see a specialist. A PPO covers out-of-network care without a referral, at a higher cost.

No Surprises Act protections. Under 29 CFR 2590.716-4, a group health plan or insurer that covers emergency department services must cover emergency services without prior authorization and whether or not the provider is in network. Out-of-network cost sharing cannot exceed the in-network level, is calculated on the "recognized amount," and must count toward the in-network deductible and out-of-pocket maximum. The recognized amount is set by a specified state law or All-Payer Model Agreement where one applies, and otherwise is the lesser of the qualifying payment amount or the billed amount (29 CFR 2590.716-3). Under 29 CFR 2590.716-5, the same cost-sharing rules apply to non-emergency items and services from an out-of-network provider during a visit to an in-network facility, unless the provider met the federal notice and consent rules. CMS lists the covered facilities as hospitals, hospital outpatient departments and ambulatory surgical centers. The plan must make an initial payment or send a denial within 30 calendar days after the provider transmits the bill.

Notice and consent limits. CMS says providers cannot ask patients to waive protections for emergency services, and that assistant surgeons, hospitalists, intensivists, and providers of emergency medicine, anesthesiology, pathology, radiology, neonatology and diagnostic services may not use notice and consent forms. CMS lists exceptions: ground ambulance services generally are not covered by the Act, and the protections generally do not apply to vision-only or dental-only plans, short-term limited duration plans, or fixed indemnity plans. CMS also describes up to 90 days of in-network coverage for "continuing care patients" when their provider leaves the network.

Provider directories. DOL, HHS and Treasury FAQs Part 49 (August 20, 2021) explain that ERISA section 720 requires plans to verify and update directory information and answer questions about a provider's network status. If a participant relies on inaccurate directory information showing a provider as in network, the plan cannot charge more than in-network cost sharing and must count it toward in-network limits. The FAQs said plans should use a good faith, reasonable interpretation pending regulations.

Offering a PPO as an employer. A PPO offered to employees is a group health plan and one benefit package among the employee benefits an employer provides. DOL Technical Release 2014-01 notes that a sponsor may provide coverage through an insurance contract or instead pay benefits directly as claims occur (self-insure), and explains the difference: private sector plans that self-insure generally are not subject to state health insurance laws, including coverage laws and rating policies, though they remain subject to federal group market protections. That follows from ERISA section 514 (29 U.S.C. 1144), which preempts state laws relating to employee benefit plans but saves state laws that regulate insurance and bars states from deeming a plan to be an insurer. DOL takes the view that states may regulate stop-loss policies sold to self-insured plans. The No Surprises Act rules above apply to both insured and self-insured group health plans.

Summary of Benefits and Coverage. Under 29 CFR 2590.715-2715, the plan and insurer must provide an SBC for each benefit package, free, with enrollment materials, by the first day of coverage if information changed, at renewal (no later than 30 days before the new plan year when renewal is automatic), to special enrollees within 90 days, and within seven business days of a request. For a network plan it must include an internet address or similar contact for a list of network providers. It may not exceed four double-sided pages or use print smaller than 12-point. A mid-year material change that affects the SBC requires notice 60 days before it takes effect. For an insured plan, the insurer's timely and complete SBC satisfies the plan's duty. The penalty is up to $1,000 per failure, adjusted for inflation; the 2025 adjustment is $1,443, and DOL's May 27, 2026 rule made no 2026 adjustment.

Summary plan description. For group health plans, 29 CFR 2520.102-3(j)(3) requires the summary plan description to describe cost sharing, provisions governing network providers, the composition of the network, whether and when out-of-network services are covered, limits on emergency care, and preauthorization rules. The provider list may be a separate document if the SPD says lists are furnished automatically and without charge.

A PPO as an HSA-eligible plan. A PPO can be a high deductible health plan if it meets the IRS limits. Publication 969 states that the out-of-pocket limit does not apply to out-of-network deductibles and expenses if the plan uses a network; only in-network amounts are used. Because the 2026 HDHP limit ($8,500 self-only) is lower than the ACA limit ($10,600), an HSA-eligible PPO must meet the lower HDHP figure in network. An HDHP may cover preventive care without a deductible, and Publication 969 notes that it may provide benefits under anti-surprise billing laws, and telehealth, without a deductible. See health savings account (HSA) for contribution rules.

Where states differ. States regulate the networks of insured PPOs. Two examples: the Texas Department of Insurance says Insurance Code Chapter 1301 authorizes PPO and EPO plans, that an insurer must file a network adequacy report on or before April 1 each year, and that an insurer whose network misses time, distance or appointment wait standards in a county must apply for a waiver. The California Department of Insurance lists standards such as primary care within 30 minutes or 15 miles of a covered person's home or workplace and at least one full-time primary care physician per 2,000 covered persons, and notes that plans regulated by the Department of Managed Health Care follow different rules. These rules generally do not reach a self-insured plan.

Step by step for an employer. (1) Decide whether the PPO will be insured or self-funded. (2) Confirm that in-network limits for the plan year do not exceed $10,600 / $21,200 for 2026 or $12,000 / $24,000 for 2027. (3) If the PPO is offered with an HSA, check the HDHP limits as well. (4) Get the SBC and distribute it on time. (5) Update the SPD's network description. (6) Give 60 days' notice of mid-year changes that affect the SBC.

Example 1 (illustration): in and out of network. A PPO member who has met both deductibles gets a service billed at $1,000 with a $600 allowed amount. In network, at 20% coinsurance, the member pays $120 and the preferred provider cannot balance bill. Out of network, at 40%, the member pays $240 plus a $400 balance bill, or $640, and the $400 does not count toward the out-of-pocket limit.

Example 2 (illustration): embedded limit. A 2026 family PPO has a $21,200 in-network out-of-pocket maximum. One family member incurs $14,000 of in-network cost sharing. Because the self-only limit applies to each individual, that person pays no more than $10,600 and the plan pays the other $3,400.

Example 3 (illustration): surprise bill. A member who has met the in-network deductible has scheduled surgery at an in-network hospital, and the anesthesiologist is out of network. Anesthesiology cannot use notice and consent, so with a $1,000 recognized amount and 20% in-network coinsurance the member owes $200, which counts toward the in-network out-of-pocket maximum.

Question: Must a PPO count out-of-network spending toward the out-of-pocket maximum? No. Under 45 CFR 156.130(c) and ACA FAQs Part XXI a network plan may, but is not required to, count it, except where the No Surprises Act requires in-network treatment.

Question: Do state network adequacy laws apply to a self-funded PPO? Generally not. DOL Technical Release 2014-01 says private sector self-insured plans generally are not subject to state health insurance laws.

Question: Who sends the SBC for an insured PPO? Both the plan and the insurer are responsible, but the plan's duty is met if the insurer provides a timely and complete SBC (29 CFR 2590.715-2715(a)(1)(iii)).

Question: Is the No Surprises Act limited to insured plans? No. 29 CFR 2590.716-4 and 2590.716-5 apply to group health plans and to insurers offering group coverage, and CMS says the protections apply to coverage through an employer.

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