A health maintenance organization, or HMO, is a type of health insurance plan that typically offers lower premiums and out-of-pocket costs in exchange for members using the plan’s network of providers.
That network is usually confined to a certain city or geographic area.
An HMO can be a good choice for healthy people who don’t anticipate needing a lot of specialized care in the coming year.
However, these plans tend to offer less flexibility in where you can go for care than other types of health plans, such as preferred provider organizations (PPOs).
Read on to learn if an HMO could be the right plan for you and your family.
How Do HMOs Work?
HMOs contract with a group of doctors, hospitals, and other healthcare providers within a certain area for a negotiated fee.
In return for accepting lower payments, HMOs offer providers a steady stream of patients. Insurers can then pass the savings onto patients in the form of lower premiums and out-of-pocket costs.
To take advantage of these lower costs, HMO members must, for the most part, receive care only from network providers.
This starts with your primary care physician (PCP). HMO members typically should choose a PCP from the plan’s network. Your PCP takes care of annual check-ups and other medical needs that require an office visit.
In an HMO, your PCP is typically also the gatekeeper for your other health needs. To see a specialist, such as a podiatrist or a dermatologist, you would likely need to first visit your PCP to get a referral to a specialist within the network.
There are often some exceptions to network-only care, however. Emergency care received out-of-network is usually covered. And, with some preventive care services, such as mammograms and gynecological visits, you may be able to see a network doctor without first getting a referral.
In cases where you may have a serious health condition requiring a specialist not included in the network, the HMO may cover that treatment as long as you request pre-approval.
In addition to low premiums, there are often low or no deductibles with an HMO. Instead, the plan will typically charge a copayment, or copay, for each clinical visit, test, or prescription.
How Do HMOs Compare With Other Types of Health Insurance?
Another commonly available health plan offered by employers and health insurance companies is a preferred provider organization, or PPO. These plans have many features in common with HMOs, but also a few key differences.
As with an HMO, members of a PPO plan have access to a network of providers. When they use providers within that network, they will typically pay less out-of-pocket costs, such as copays.
Unlike an HMO, however, care outside of the network is usually also covered, but at an additional cost.
How much the PPO will pay for an out-of-network doctor may be capped at what the PPO deems the “customary and usual” payments for providers in your area.
Depending on where you live, that could mean a small or potentially large additional out-of-pocket cost.
Another key difference between these two types of plans: With a PPO, you typically do not need a referral to see a specialist, either within or outside of the network.
In addition, PPO plans usually have deductibles, while some HMOs do not. PPO plans also typically have more expensive premiums than HMOs.
However, not having to see your PCP (and pay a copay) to get a referral to a specialist can be a cost saver for members of PPOs.
The Pros and Cons of HMOs
It can be a good idea to weigh the advantages and disadvantages of HMOs before you choose a plan, just as you would with any other option.
Here are some of the most common pros and cons.
Advantages of HMOs
• Lower costs. Premiums, deductibles, and copays are usually lower with an HMO compared to other types of health care plans. Some plans even have no deductible. Your out-of-pocket costs will also likely be lower for your prescriptions.
• Less paperwork. Because your care is managed through your PCP and you are receiving care through the HMO network, billing tends to be less complicated for those with an HMO.
• Care is often high quality. Because preventive services are generally fully covered and because your PCP can act as your advocate for early intervention medical care, many people find HMOs provide good quality of health care.
Disadvantages of HMOs
• Provider Restrictions. With an HMO you must choose a primary care physician from the plan’s network. This doctor will manage your care and refer you to specialists within the network. If your current doctor is not in the HMO network, you would likely need to switch.
• Restricted emergency care. Emergency care is usually covered even if it is received from out of network providers. But HMOs often have strict rules on what constitutes an emergency and which emergency providers will be covered.
• Geographic restrictions. Because HMO networks are usually located within one geographic area, your network of providers will only be available within that location. That means if you’re travelling and you need medical care, those bills may not be covered, unless it is an emergency. Also, dependent college children who attend school out of state are usually not covered.
HMO plans can be a very efficient, low-cost way to manage your health care needs. These plans can foster a close relationship with your primary care physician who can help you navigate both preventive and specialty care.
Some consumers feel the restrictions on receiving care from out-of-network providers and the hassles of getting a referral can be an obstacle to optimal care.
HMOs are often compared to PPOs, which generally allow members more freedom to see out-of-network providers (though going out of network may cost more). PPOs typically don’t require referrals to see specialists.
To determine which type of health plan is best for you, you’ll likely want to weigh the costs and plan offerings against your budget and health needs.
Before choosing a plan, it might also be helpful to track your spending for a few months to see how much you are currently spending on medical care.
You can do this with pen and paper, or by using a budgeting app, such as SoFi Relay.
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