Following the passage of legislation in 1983, insurance companies were authorized to enter into "alternative rates of payment" agreements with licensed health care providers. Those entering into the agreements are called PPOs.
The concept is that if one provider or a group of providers has a large volume of business from a group of insureds, it can afford to give them health care at lower guaranteed costs. This savings in health care costs can then be used to prevent health insurance premiums from increasing for that particular group of insureds.