Health Maintenance Organization (HMO)

A Health Maintenance Organization (HMO) is a type of network health insurance plan which focuses on prevention and coordinated care by 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.

What Is a Health Maintenance Organization (HMO)?

A Health Maintenance Organization is a health insurance plan that focuses on prevention and provides integrated care by requiring a referral from an in-network primary care physician in order to visit an in-network specialist.

With most HMO plans, patients must receive care and services from in-network primary care physicians, specialists, hospitals, clinics, and pharmacies unless it is for out-of-area urgent care or emergency care.

There are a few other points of consideration regarding HMO insurance plans:

• Many services require a referral or prior approval.

• If patients receive care from outside the network, services may not be covered.

• In most cases, prescription drugs are covered.

What Is the Purpose of a Health Maintenance Organization?

The purpose of a Health Maintenance Organization is to focus on overall patient wellness and preventive healthcare while keeping costs low for its members by only covering in-network physicians and facilities.

What Is One Advantage of an HMO?

One advantage of an HMO is that they typically offer lower monthly premiums and out-of-pocket costs (deductibles, copays, and coinsurance) than other types of insurance plans. 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 U.S. 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).

Is It Better to Have a PPO or HMO?

Whether or not it is better to have a PPO or an HMO 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 also have the option to visit out-of-network healthcare providers, albeit, at a higher out-of-pocket cost. Also, PPOs generally come with higher co-payments and/or deductibles.

PPO:

• 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 lower.

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.