Rethinking Your Health Plan Network: Why Alternative Strategies May Offer Greater Value Than PPOs

AUGUST 5, 2025

Preferred provider organizations (or PPOs) have long been the go-to for employer-sponsored health plans. But as healthcare costs continue to rise and PPO networks expand to include nearly all providers, their ability to deliver meaningful savings and quality care has diminished. For many employers, the only remaining advantage of a PPO is protecting plan members from balance billing — hardly a compelling value proposition in today’s cost-conscious environment.

The Evolution — and Erosion — of PPO Value

Originally, PPOs struck a balance between cost and access. They offered discounts in exchange for steering patients to a curated network of high-quality, cost-effective providers. This model delivered average premium savings of 7% to 12% and helped employers manage healthcare spending.

However, demand grew for broader access, with employers and plan members urging health insurance carriers to add more hospitals and physicians to their networks. In response, insurers expanded their PPO networks to include up to 97% of providers.

This expansion diluted the original value proposition. Providers began inflating billed charges, knowing insurers would still claim “discounts” off those inflated rates. The result: wide cost variation within the same network, with little correlation to quality of care.

A Smarter Approach: Value-Based and Incentivized Networks

To regain control over costs and improve outcomes, many employers are exploring value-based or alternative network models. These strategies return to the core principles that made early PPOs effective: narrower networks, higher-quality care, and aligned incentives.

In a value-based network:

  • Providers are rewarded for patient outcomes and satisfaction, not service volume.
  • Care is coordinated and tailored to individual needs.
  • Chronic conditions are proactively managed.
  • Employees benefit from lower out-of-pocket costs and a more positive care experience.

Some insurers now offer their own incentivized networks, which employers can use to supplement or replace traditional PPOs.

Making the Shift: What Employers Should Consider

Transitioning to an alternative network strategy requires thoughtful planning and data-driven decision-making. Employers should evaluate:

  • Plan design options that align with health and financial goals.
  • The financial impact of alternative funding models, such as self-funding.
  • Key cost drivers and mitigation strategies to optimize plan performance.