A Health Maintenance Organization (HMO) is a type of network health insurance plan that focuses on prevention and coordinated care using a primary care physician (PCP).
The PCP coordinates members’ care with in-network specialists, so members must receive a PCP’s referral to see any specialist. Out-of-network care generally isn’t covered at all, except in an emergency and other special cases.
What Do HMO Plans Cover?
Most HMO plans cover care and services from in-network primary care physicians, specialists, hospitals, clinics, and pharmacies. The care providers under HMO plans either work for or are contracted with the HMO.
There are a few key points of consideration regarding HMO plans:
- Some plans may require members to live or work in specific service areas.
- Healthcare services generally require a referral or prior approval from an in-network PCP.
- If patients receive care from outside the network, services may not be covered.
HMO Insurance Exceptions
Though out-of-network care is not covered under an HMO, there may be exceptions to this rule such as the following:
- The patient experiences a life-threatening situation that requires emergency care.
- A provider is not available for the specific type of care an individual needs. These cases are rare, but if the HMO does not have the right physician or services, your employee can work with the HMO to find out-of-network care.
- An employee transitions to an HMO amid a treatment plan that is not covered under the HMO. The HMO can evaluate their case and determine whether they can finish treatment with their current provider.
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What Is the Purpose of a Health Maintenance Organization?
The purpose of a Health Maintenance Organization is to provide integrated and preventative care while keeping costs low. HMOs rely on in-network physicians to refer their patients to the right specialists and receive the well-rounded care they need.
An HMO would rather spend a small amount of money upfront to prevent an illness than manage large costs later on to treat the illness.
Who Is Eligible for HMO Insurance?
An individual must live in the plan’s service area to be eligible for HMO insurance. Employees may also be eligible if their employer offers HMO plans as part of the company’s health benefits.
HMO vs. PPO: Which Is Better?
Whether or not it is better to have an HMO or PPO depends on several factors, including the general health of the plan’s members, the desired amount of flexibility in choosing doctors and healthcare facilities, and budget constraints.
A Preferred Provider Organization (PPO) offers more flexibility in doctors and facilities than HMOs, because members have more options. Members don’t need a primary care physician’s referral to visit a specialist and have the option to visit out-of-network healthcare providers at a higher out-of-pocket cost. Also, PPOs generally come with higher co-payments and/or deductibles.
Here’s a simple breakdown of PPO vs. HMO:
PPO:
- It does not require a primary care physician.
- Members may select any doctor, even out-of-network (at a higher cost).
- There is no need to get a referral to see a specialist.
- Members may need to submit an insurance claim for out-of-network care.
- The plan costs are generally higher.
HMO:
- A primary care physician coordinates all healthcare decisions and makes referrals to specialists and for hospital visits (except in the case of an emergency).
- Members are not required to file claims, since the insurance company pays the provider directly.
- The costs are generally more affordable than PPOs.
- Members have limited choices compared to PPO members when it comes to selecting physicians and hospitals.
When deciding between the two plans, it basically comes down to the greater flexibility of a PPO plan versus the lower cost of an HMO plan.
What Is the Difference between HMO and Traditional Health Insurance?
There are three key differences between an HMO and traditional health insurance:
- Access to Care: While an HMO usually provides coverage for specific healthcare providers, a traditional health insurance plan (also known as indemnity or fee-for-service) generally allows a member to obtain treatment from any medical provider.
- Cost: HMOs are typically cheaper compared to traditional healthcare plans, providing lower premiums and out-of-pocket costs. Traditional insurance plans simply agree to pay a certain percentage of an employee's healthcare costs. The employee is then responsible for paying the balance. The percentage depends on the type of plan the individual applies for.
- Referrals: As mentioned earlier, someone under an HMO plan cannot refer themselves to a specialist, while someone with traditional insurance can. For example, if an employee under an HMO wakes up one day unable to move their foot, they cannot make an appointment with an orthopedic specialist. Their PCP must authorize and refer them to a specialist. Overall, an HMO plan requires a designated PCP to serve as a patient’s first point of contact for all healthcare needs.
What Is the Main Advantage of an HMO?
The main advantage of an HMO is the affordability. An HMO is especially affordable for people who only need basic medical care such as annual checkups and immunizations.
In addition to lower costs, there are other advantages of an HMO:
- HMOs in just about every part of the US have large networks of doctors, including specialists.
- HMOs often honor the networks of associated plans (such as plans run by the same insurance carrier in other states). Members who travel can call the plan to ask about in-network care on the road.
- There are no restrictions on the number of primary care visits.
- Drug costs are kept low (generally requiring only a small co-payment) and both generic and brand name drugs are available.
- Usually, patients will not be required to submit claims to the insurance company.
- They offer an appeal process if a claim is denied.
There are, however, a few disadvantages of an HMO:
- Patients will only get insurance coverage if they visit an in-network physician and facility.
- If a primary care physician leaves the network, patients will need to change doctors.
- Patients must get a referral from their primary care physician before seeing a specialist (unless it’s an emergency).
