Navigating the world of medical insurance is complicated, to say the least.
However, when shopping for health insurance, individuals need to have a solid understanding of all their options as several healthcare plans are available – all with unique features.
Knowing the differences between various plans is crucial for picking the right plan to cover all healthcare needs and stay within budget.
This article answers the question of what a health maintenance organization is, its purpose, and the different types of HMOs.
What is а Health Maintenance Organization (HMO)?
The definition of health maintenance organization that the CDC provides reads, “A health care system that assumes or shares both the financial risks and the delivery risks associated with providing comprehensive medical services to a voluntarily enrolled population in a particular geographic area, usually in return for a fixed, prepaid fee.”
Sounds confusing, so what is a health maintenance organization?
Simply put, HMO is an insurance structure focusing on prevention through a network of physicians. With most HMO plans, patients require a referral from an in-network primary care physician to visit an in-network specialist.
Patients can receive services and care from in-network primary care physicians, hospitals, clinics, pharmacies, and specialists unless it is for out-of-area emergency care or urgent care. Health maintenance organizations aim to combine care management and delivery at a prepaid cost in order to provide cost-efficient quality care.
Health Maintenance Organization Characteristics
The main characteristics of HMO insurance plans include the following:
- HMOs provide medical insurance coverage for a monthly or annual fee.
- HMO insurance plans limit member coverage to healthcare provided through a network of physicians, doctors, and other medical providers who are under contract with the HMO.
- Many services require a referral or prior approval.
- Premiums are typically lower than traditional health insurance.
- However, if patients need to receive care from outside the network, services may not be covered.
- Most of the time, prescription drugs are covered.
HMO Benefits for Employees
HMO plans give employees the ability to seek and coordinate care locally should they require it.
Once employees have a primary care provider (PCP), they have better access to health care information, guiding them to specialists and other providers within the health network as needed, in addition to receiving routine check-ups, physicals, and other minor illnesses.
One benefit for employees is that although HMO doesn’t pay for care delivered by out-of-network providers, employees will always be able to receive care in case of an emergency. The few exceptions when HMO out-of-network care is covered are:
- Emergency Care
- Out-of-Area Urgent Care
- Out-of-Area Dialysis
HMO plans provide integrated care and encourage wellness and prevention of illnesses. As a result, referrals are not required for certain services, such as a yearly mammogram screening.
This keeps health care costs low for employees and helps them manage and coordinate their care within the network, ultimately helping employees remain in good health.
What are the Different Types of Health Maintenance Organizations?
There are two models of HMO health insurance plans: pure HMO and open-ended HMO. Pure HMO enrollees use only the prepaid, pre-selected health services of the HMO panel of medical care providers.
While open-ended HMO enrollees also use prepaid HMO health services, they may also receive medical care from providers who are not part of the HMO network. A substantial co-payment, deductible, or coinsurance is usually associated with the use of non-network providers.
In addition, there are several different types of HMOs, and they are described as:
- Staff model – In this type of closed-panel HMO, the physicians and doctors are the employees of the HMO and work services in HMO-owned buildings.
- Group model HMO – In this model of HMO, the doctors, physicians, and medical professionals are not hired directly. Instead, they belong to a single multi-specialty medical group. This group practice may work exclusively with the HMO, or it may offer services to non-HMO patients as well. The HMO pays the medical group in bulk, and the medical professionals decide how the money is distributed among themselves.
- Mixed model HMO – An HMO that combines features of multiple HMO models.
- Network model HMO – An HMO that contracts with a combination of multi-specialty physician group practices, independent practice groups and physicians to provide medical services.
The Purpose of HMO
However, to fully answer the question of what the goal of the HMO is, we must break down and answer what a health maintenance organization is and how they operate.
An HMO is an organized private or public entity that offers basic and supplemental health services to its subscribers. HMOs secure their network of health providers by signing contracts with primary care physicians (PCPs), specialists, and clinical facilities.
These medical entities that sign contracts with the HMO are paid a pre-established fee to provide a range of services to the HMO’s members.
How Does Health Maintenance Organization Work?
The agreed payment allows HMOs to offer lower premiums than other similar types of health insurance plans while maintaining a high quality of care from its network.
In addition to low premiums, generally, there are low or no deductibles with an HMO. Rather, the organization charges a co-payment for each clinical visit, test, or prescription.
Co-pays in HMOs are usually low – most commonly $5, $10, or $20 per service – making out-of-pocket expenses low and HMOs affordable for families and employers.
Therefore, the motivation for the emergence of HMOs is a desire to align financial and care-quality incentives. Other alternative healthcare payment structures, such as fee-for-service designs, may have a financial incentive to do so inefficiently.
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Health Maintenance Organization Examples
For example, if an HMO enrollee is experiencing debilitating headaches, they would need to see their primary care physician first. If the doctor concludes that the patient needs additional testing, they may refer them to an in-network neurologist. If the HMO enrollee calls a neurologist directly for an appointment without a referral, the HMO insurance likely won’t pay for the visit. Since you may be wondering what does HMO cover, specialists and services that might be included in an HMO network include:
- Imaging centers
- Health care professionals
- Medical equipment vendors
Today, almost every major insurance company has an HMO plan. Furthermore, state-licensed health maintenance organizations examples include Kaiser Permanente and Harvard Pilgrim.
The Benefits of HMO
The main advantages of health maintenance organizations are the cost and quality of care. While an HMO is more restrictive than other health plans, health care and doctor visits are simple, easy, and reliable.
- Preventive Care – HMO plans focus on wellness and encourage members to have annual check-ups and seek medical treatment early. HMOs often provide timely and helpful information to their members about staying healthy.
- Least Expensive Health Insurance – Instead of a deductible, most HMO plans have a monthly premium and small co-payments for medical treatments and services, regardless of the level of medical needs.
- No Lifetime Maximum Payout – Unlike other health insurance plans, many HMO policies don’t have a maximum lifetime payout. This means that HMOs will continue to pay for medical needs as long as members are enrolled in the plan.
- Less Complicated Billing – Members experience fewer billing problems with HMOs since their systems are less complex than other plans.
Disadvantages of HMO Health Insurance
There are a few disadvantages of an HMO:
- Primary Care Physician Restrictions – Patients only get coverage if they visit an in-network physician and facility.
- Difficulty Obtaining Specialized Care – Furthermore, specialized medical attention may be more difficult to get since members need a referral from their PCP.
- Patient Quotas – Physicians who participate in HMOs have minimum patient quotas daily, limiting the time they can spend with patients to address their needs.
- Difficulty with Changing Doctors – Many HMOs discourage members or set a limit to changing primary care physicians.
What’s the Difference Between HMO & PPO?
The most common alternative to an HMO plan is a preferred provider organization (PPO). Both of these insurance plans offer a network of providers who have agreed to charge a specific rate. However, there are some differences between HMO and PPO plans.
With a PPO, members don’t need to select a primary care physician. This means whenever they need to see a specialist, they can contact one directly and schedule an appointment. PPO enrollees’ can also visit doctors outside of their network, but they must pay more. An HMO is typically less expensive than a PPO, but a PPO offers greater flexibility and eliminates the need for referrals to see specialists making disease management more accessible.
HMO vs. Health Insurance
Coverage under an HMO is somewhat restrictive but costs less to insured parties. On the other hand, traditional health insurance charges higher premiums, higher deductibles, and higher co-payments. However, these health insurance plans are much more flexible. Individuals with health insurance don’t need a primary care physician (PCP) to outline treatment. In addition, health insurance also pays some of the costs for non-network provider visits.
HMO Plans & Coverage
Since HMOs generally won’t cover out-of-network care, a member may need to live or work in a specific coverage area to be eligible to join a particular HMO. In cases where a subscriber receives emergency care while out of the HMO network region, the HMO may cover the expenses.
However, there is a strict definition of what is considered an “emergency.” HMO subscribers who receive non–emergency care outside of the HMO network will have to pay for it out-of-pocket.
Health Maintenance Organization Care Cost
The cost of the HMO plan depends on several factors, such as:
- Plan tier
- Dependents on the plan
- Tobacco use
According to the Kaiser Family Foundation report, employees paid an average of $108 per month for single coverage and $497 for family coverage in an employer-sponsored health plan in 2021.
Health insurance is not one-size-fits-all, and finding the right plan depends on many personal variables. What’s more, insurance plans vary in terms of cost, network size, coverage, and rules making it even more challenging to choose a plan.
Therefore, answering what a health maintenance organization is and weighing the benefits and disadvantages of this plan can significantly affect your health, finances, and quality of life.