Health Maintenance Organization
A person who needs health insurance can find a variety of health insurance providers with unique features. One type of insurance provider that is popular in the health insurance market is a health maintenance organization (HMO), an insurance structure that provides coverage through a network of physicians.
Health care organizations (HMOs) provide health insurance coverage for a monthly or annual fee . An HMO limits members’ coverage to medical care provided by a network of doctors and other health care providers who are under contract with the HMO. These contracts allow premiums to be lower than those of traditional health providers since health insurance has the advantage of having patients referred to them. They also add additional restrictions to HMO members.
When deciding whether to choose an HMO insurance plan, you should consider the cost of premiums, out-of-pocket expenses, any requirements you may have for specialized medical care, and whether you need to have your primary care provider.
Key points to remember
- A health maintenance organization (HMO) is a network or organization that provides health insurance coverage for a monthly or annual fee.
- An HMO is made up of a group of medical insurance providers who limit coverage to medical care provided by doctors and other providers under contract with the HMO.
- These contracts reduce premiums — since healthcare providers have the benefit of referring patients to them — but they also add additional restrictions to HMO members.
- HMO plans require participants to first receive medical care services from a designated provider known as a primary care physician (PCP).
- Preferred provider organizations (PPOs) and point-of-service (POS) plans are two types of healthcare plans that are alternatives to HMOs.
How an HMO works
An HMO is an organized public or private entity that provides basic and complementary healthcare services to its subscribers. The organization secures its network of healthcare providers by contracting with primary care physicians, clinical facilities, and specialists. Medical entities that enter into contracts with the HMO receive agreed-upon fees for providing a range of services to HMO subscribers. The agreed payment allows an HMO to offer lower premiums than other types of health insurance plans while maintaining a high quality of care from its network.
The HMO as it exists today was created under the 1973 law. Passed by former President Richard Nixon, the law clarified the definition of HMOs as “a public or private entity organized to provide services basic and complementary healthcare to its members. The law further requires that plans provide policyholders with basic health care in exchange for periodic, fixed premiums that are set “under a community rating.” »
Rules for HMO Subscribers
HMO subscribers pay a monthly or annual premium to access medical services within the organization’s provider network, but they are limited to receiving their care and services from physicians within the HMO network. However, some out-of-network services, including emergency care and dialysis, may be covered by the HMO.
Those insured under an HMO may need to live or work within the plan’s network area to be eligible for coverage. In cases where a subscriber receives urgent care outside of the HMO network region, the HMO may cover the cost. But HMO subscribers who receive non-emergency, out-of-network care must pay for it out of pocket.
In addition to low premiums, there are usually low or no deductibles with an HMO. Instead, the organization charges a copayment for each clinic visit, test, or prescription. Co-payments in HMOs are typically low — typically $5, $10, or $20 per service — minimizing out-of-pocket expenses and making HMO plans affordable for families and employers.
The role of the primary care physician
The insured must choose a primary care physician (PCP) from the network of local health care providers under an HMO plan. A primary care physician is usually a person’s first point of contact for all health issues. This means that an insured person cannot see a specialist without first receiving a referral from their PCP.
However, some specialized services, such as screening mammograms, do not require a referral. The specialists to whom PCPs generally refer insured members are covered by HMO coverage, so their services are covered by the HMO plan once co-payments are made. If a primary care physician leaves the network, subscribers are notified and must choose another PCP in the HMO plan.
HMO vs Preferred Provider Organization (PPO)
A Preferred Provider Organization (PPO) is a medical care plan in which healthcare professionals and facilities provide services to subscribing customers at reduced rates. OPP medical and health care providers are referred to as preferred providers.
PPO participants are free to use the services of any provider within their network.4 Out-of-network care is available, but it costs the insured more. Unlike a PPO, HMO plans require participants to receive health services from a designated provider. PPO plans usually have deductibles, unlike HMOs.
Both programs allow for specialized services. However, the designated primary care physician must provide a referral to a specialist under an HMO plan. PPO plans are the oldest and, due to their flexibility and relatively low management fees, have been the most popular managed healthcare plans. That has changed, however, as the plans have reduced the size of their supplier networks and taken other steps to control costs.
HMO vs Point of Service (POS)
A point-of-service (POS) plan is like an HMO in that it requires a policyholder to choose a primary care physician from within the network and obtain referrals from that physician if they want the plan to cover the services of a specialist. A service point is also provided as a PPO in that it still provides coverage for out-of-network services, but the policyholder must pay more for these services than if they used in-network providers.
However, a POS plan will pay more for an out-of-network service if the policyholder gets a referral from their primary care physician than if they don’t get a referral. The premiums for a POS plan fall between the lower premiums offered by an HMO and the higher premiums offered by a PPO.
POS plans require the insured to make co-pays, but in-network co-pays are often only $10 to $25 per appointment. Point-of-sale plans also do not include a franchise for in-network services, which is a significant advantage over PPOs.
Also, point-of-sale plans offer nationwide coverage, which benefits patients who travel frequently. A downside is that out-of-network deductibles tend to be high for point-of-sale plans, so patients using out-of-network services will pay the full cost of care out of pocket until they reach the plan deductible. However, a patient who never uses the out-of-network services of a point-of-sale plan would likely be better off with an HMO because of its lower premiums.
If you don’t travel frequently, you’ll be better off with an HMO rather than a point-of-care plan because of the lower costs.
Advantages and disadvantages of HMOs
It’s important to weigh the pros and cons of HMOs before deciding on a plan, just as you would with any other option. We have listed some of the most common pros and cons of the program below.
The first and most obvious advantage of participating in an HMO is the low cost. You will pay fixed premiums on a monthly or annual basis which are lower than traditional forms of health insurance. These plans tend to have low or no deductibles and your co-payment is usually lower than other plans. Your out-of-pocket costs will also be lower for your prescription.8 Billing also tends to be less complicated for those with an HMO.
There is also a very good chance that you will have to deal with the insurer itself. This is because you have a primary care doctor from whom you must choose who is responsible for managing your treatment and care. This professional will also advocate for the services on your behalf. This includes referrals to specialized services for you.
The quality of care is generally better with an HMO. The reason for this is that patients are encouraged to have annual physical exams and seek treatment early.
If you pay for an HMO, you are limited on how you can use the plan. You will need to appoint a doctor, who will be responsible for your health care needs, including your primary care and referrals. This doctor, however, must be part of the network. This means that you are responsible for all costs incurred if you see someone outside the network, even if there is no approved doctor in your area.
You will need referrals for specialists if you want your HMO to pay for any visits. So if you need to see a rheumatologist or dermatologist, your primary care physician must make a referral before you can see them for the plan to pay for your visit. Otherwise, you are responsible for the entire cost.10
There are very specific conditions you must meet for certain medical claims, such as emergencies. For example, there are usually very strict definitions of what constitutes an emergency. If your state is not, the HMO plan will not pay.
- Reduced out-of-pocket expenses, including lower premiums, low or no deductibles, and a low copayment.
- Your primary care physician will direct your treatment and advocate for you.
- Better quality of care.
- Health professionals must be part of the plan’s network.
- You cannot see a specialist without a referral from your family doctor.
- Emergencies must meet certain conditions before the scheme pays out.
What is HMO Insurance?
HMO or health maintenance organization insurance provides covered individuals with health insurance in exchange for a monthly or annual fee. People pay lower premiums than those with other forms of health insurance when they see doctors and other providers who are part of the HMO network.
What are HMO examples?
Almost all major insurance companies offer an HMO plan. For example, Cigna and Humana provide their versions of the HMO. Aetna also offers individuals two options, including the Aetna HMO plan and the Aetna Health Network Only plan.
What is the difference between an HMO and health insurance?
Coverage under an HMO is usually quite restrictive and costs less to policyholders. Traditional health insurance, on the other hand, charges higher premiums, higher deductibles, and higher co-pays. But health insurance plans are much more flexible. People with health insurance do not need to have a primary care physician to describe treatment. Health insurance also bears part of the costs of out-of-network providers.
What are the benefits of an HMO?
The main advantages are cost and quality of care. People who buy HMO plans enjoy lower premiums than traditional forms of health insurance. This allows policyholders to obtain a better quality of care from providers under contract with the organization. HMOs typically come with low or no deductibles and only charge relatively low co-pays. HMO participants also do not need referrals to obtain specialized services such as mammograms.
Why do HMOs have a bad reputation?
There are several restrictions for people covered by HMOs, which is why these plans have such a bad reputation. For example, HMOs only allow policyholders to see individuals within their network, which means they are responsible for the full cost of a visit to any doctor or specialist outside of that group. The plan may also require individuals to live in a certain area, which means that someone who receives medical services outside of the HMO’s network must pay for them themselves. The plans also require individuals to choose a treating physician who determines the type of treatment patients need.
The bottom line
Health insurance is an important consideration for every individual. Choosing the right plan depends on your circumstances, including your health, finances, and quality of life. You can choose between traditional health insurance, such as the Preferred Provider Organization, or the HMO, also known as the Health Maintenance Organization. The HMO offers policyholders lower fees, but more restrictive terms, including the doctor you see. Be sure to weigh the pros and cons of the plan, whichever you choose.