A Health Maintenance Organization (HMO) is a type of affordable health insurance plan that offers a network of providers you can choose from for your healthcare needs. HMOs can give you coverage at lower rates because their networks are more limited and less flexible than those of other types of plans. Lower rates but less flexibility are the two key components of HMOs, but there are other things you should consider when trying to decide if an HMO is right for you. So, if you’re considering an HMO, it’s important to understand how they work and how they differ from other plans.
How HMOs Work
An HMO’s care network is the key to its coverage. The providers in an HMO’s network, like doctors, hospitals, labs, and specialists, all have contracts with the plan, and are paid to offer a variety of health services to policyholders. These plans often have a geographic service area, meaning you’ll have to see providers in your specific area, and the fees associated with the plan will be determined based on your area’s specific population.
While HMOs have less flexibility than other plans, they have lower premiums. Their limited networks, and the fact that the providers in the network have patients directed to them, means savings gets passed on to you.
What Makes HMOs Unique
A key difference between HMOs and other plan types is that you are required to receive care from the providers in the HMO’s care network. There are a few exceptions to this:
- You have a medical emergency – You can see a provider outside of your network if you need immediate care (if you’ve been in a life-threatening accident, for example)
- Your plan does not have a provider – In the rare case that your HMO network doesn’t have a provider for the care you require, you might be able to receive coverage for a provider outside of your network. Your HMO would decide on a case-by-case basis if they would cover the care.
Aside from those circumstances, any care you receive outside of the network will not be covered.
Another key difference with an HMO is that you will have to choose a primary care provider (PCP) when you set up your plan. Your PCP will handle all of your general healthcare needs and help you navigate the HMO system. They will also be in charge of giving you referrals if the need for more specific care arises. You’ll need a referral to:
- See a specialist
- Receive physical therapy
- Get medical equipment like a wheelchair
As with all healthcare plans, policyholders pay monthly or annual premiums to access medical care. With an HMO insurance plan, you’ll benefit from lower costs, meaning you’ll have lower premiums, deductibles, and copays. You’ll also receive better care coordination, because you will be limited to seeing in-network doctors.
An HMO health insurance plan premium is determined by a variety of factors, including location, age, plan tier, and if you have any dependents on your plan. An example of premium rates for an HMO would look like this:
- 21-year-old – Single $342, couple $684, couple with 1 child $944
- 30-year-old – Single $390, couple $780, couple with 1 child $1,040
- 40-year-old – Single $438, couple $877, couple with 1 child $1,1,37
- 50-year-old – Single $613, couple $1,226, couple with 1 child $1,487
Along with lower premiums, there are often low or no deductibles to meet with an HMO. Instead, a copay is required for each clinical visit, test, or prescription. HMOs typically include low copays ($5, $10, or $20 per service on average), which reduces out-of-pocket costs and makes HMO plans more affordable.
Types Of HMOs
HMO plans come in a variety of forms, each having benefits and drawbacks. Although specific HMO plans are each unique, most of them now include features that all HMO plans have in common. These standard types of HMO plans are called models. The three main HMO model plans are:
- Staff model – In this type of plan, also known as a closed-panel HMO, doctors and other medical specialists work directly for the HMO. In other words, doctors and medical professionals have offices in HMO buildings and are paid directly by the HMO. These doctors can only provide treatments to HMO members.
- Group model – Healthcare providers in the group model are contracted to provide care at a fixed rate but are not directly employed by the HMO. Only patients who have joined the HMO are seen by this group of doctors.
- Network model – The network model HMO does not directly employ healthcare workers and has contracts with various medical groups. This means that the facilities and doctors in this model don’t exclusively see this plan’s policyholders.
HMO Pros and Cons
HMO plans have plenty of benefits. But as with any insurance option, there are some drawbacks as well. Depending on your situation, the benefits of this type of plan might outweigh the drawbacks. To help you decide if this is the case for you, take a look at the main pros and cons of HMO plans:
- Affordable premiums – HMOs are typically less expensive than other forms of health insurance, because all of the providers in the plan’s network have agreed to accept a set amount of money for all of the services that are available.
- Lower out-of-pocket costs – You will most likely pay less with an HMO plan for deductibles, copays, and coinsurance.
- Coordinated medical care – Your care is coordinated by a PCP under an HMO, which can mean getting better targeted treatment, and can remove the uncertainty associated with locating reliable specialists.
- No coverage for out-of-network care – Except for the circumstances we mentioned above, HMO plans do not cover care from physicians outside their network. You will be responsible for the cost of any out-of-network medical care you get.
- Required referrals – HMOs require you to first get a referral from your PCP in order to see a specialist. Without the referral your care will not be covered.
- Limited providers – HMOs have restrictions on the physicians and facilities you can go to if you want your health insurance to pay, as they only cover in-network treatment.
Types of Care Covered by HMOs
While every plan has its own list of services it covers, HMOs have three basic coverage categories. The three categories are primary, urgent, and emergency care.
- Primary care – Your PCP is in charge of your primary care. Primary care includes preventive care, like screenings or vaccines to prevent illness, as well as routine care for non-life-threatening illnesses like sore throats and fevers. It also includes follow-up care to monitor any mild health conditions like strep throat or ear infections.
- Urgent care – When you have an illness that poses a risk but isn’t life threatening, you should go to an urgent care facility. Issues like a high fever, unexplained pain, or an accident can be treated at an urgent care facility. As long as you visit an authorized facility, your plan will cover urgent care.
- Emergency care – You should dial 911 or rush to the closest emergency room as soon as possible if you experience an unexpected health emergency. Injuries like broken bones and illnesses with high fevers or excruciating pain that could permanently harm your health must be treated right away. Inform your primary care doctor about your visit to the emergency room. And if you need additional care, they can arrange it.
Your specific HMO plan might cover other services, it just depends on the specific plan you choose.
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Choosing An HMO Plan
Given that most healthcare plans are similar when it comes to quality. The decision between HMOs and other healthcare plans often comes down to cost and flexibility. Although HMO network plans are less expensive than other types of health insurance, they offer fewer choices and have more limitations.
If flexibility is your primary concern when selecting a plan, an HMO should not be your first choice. However, an HMO can be a good choice if cost is your main concern. Especially since prevention, wellness, and coordinated care are trademarks of HMO health insurance plans.
How To Enroll in an HMO
Anyone who resides or works in an HMO’s coverage region is eligible to enroll. The three most common ways that people enroll are:
- Through an employer – HMOs are one of the more popular private insurance options provided by companies. Around 16% of insured employees in 2021 selected an HMO plan as their employer-provided insurance.
- Medicare – A Medicare Advantage Plan, commonly known as Medicare Part C, offers an HMO plan to eligible beneficiaries.
- ACA Marketplace – Many HMO plans are available through the healthcare marketplace.
The Bottom Line
Everyone should give serious thought to their health insurance. However, your specific situation, including your health, finances, and quality of life, will determine the best plan for you. An HMO offers its plan members fewer out-of-pocket expenses but has more strict requirements, including which doctors you can see. Whatever your needs are, be sure to consider the plan’s advantages and disadvantages before you make your decision.