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What is a HMO plan?

Edward Neeman | Published: June 14, 2018

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HMO - another abbreviated healthcare term that you'll definitely encounter on your journey to buying health insurance. An HMO is one of many options you have for healthcare coverage, but it brings up plenty of questions: What does HMO stand for? Is it cost-effective? Is it a type of insurance plan you should consider for you and your family?

As with a PPO, the answer depends on the level of care you need, and how much you're willing to pay. Here's a breakdown of the questions and concerns you might have about HMOs, and what factors to consider when you start to narrow your options.

What Is HMO Insurance?

HMO stands for Health Maintenance Organization. It provides coverage within a network of healthcare providers located in a fixed area. This network, called a medical group, has a contract with the insurance provider's HMO plan. That means any covered services you receive within that network is pre-paid by your insurance provider.

What Does An HMO Plan Cover?

Like PPO plans, HMO health insurance plans must cover the Essential Health Benefits that are required by the Affordable Care Act. The extent of benefits coverage depends on the insurance provider you buy from, and the HMO plan you select from that insurer. If you have specific health needs, like prescription medications or specialized care for medical conditions, choose an HMO plan that covers those items and services.

How Does An HMO Work?

An HMO allows you to choose from a set network of doctors, specialists, labs, hospitals, and other healthcare facilities. As an HMO member, you must choose a primary care physician (PCP) who will manage your healthcare.

HMO plans have more restrictions than PPO plans, based on three factors:

  • Constraints on how you seek care
  • Limited networks of healthcare providers
  • No coverage for out-of-network care

Constraints On How You Seek Care

 In general, HMO insurance plans emphasize affordable routine and preventive care. Because every HMO member must visit their PCP before getting a referral for any additional medical care or services, your PCP is considered the “gatekeeper” of your health. Your primary doctor will treat you for general illnesses, prescribe medications, and decide if you should seek care from a specialist.

If you are relatively healthy, and only plan to see a doctor for basic check-ups, you probably won't mind seeing your PCP for the majority of your medical needs. However, if you plan to seek care for certain medical conditions, you might not like having to go through your PCP first.

Say you've noticed a strange mole on your skin. Before you can even make an appointment to see a dermatologist, you have to schedule a consultation with your PCP, and then get a referral to receive specialized care.

Limited Networks Of Healthcare Providers

HMO networks generally include a smaller pool of healthcare providers than PPO networks. If you don't mind having your PCP direct your care, your PCP will refer you to a specific specialist or pharmacy within your HMO network - no extra research required. But if you prefer to direct your own care, you might dislike having to visit a specialist or facility that your PCP chooses for you.

An HMO's smaller network also means you might have more limited access to healthcare providers in your area. If you have a doctor you want to keep, make sure they are included in any HMO plan you're considering.

No Coverage For Out-Of-Network Care

An HMO will not cover services and care you receive from healthcare providers outside its network, or without prior approval from your PCP or medical group. There are some exceptions to this rule:

  • You have designated an OB-GYN as your PCP. Women can also visit an OB/GYN for well-woman visits and maternity care, without a referral. 
  • You need a service that is "medically necessary" but isn't available from doctors in your HMO network. In that case, you might receive authorization to seek out-of-network care.
  • You go to an emergency room outside your network. While out-of-network ER visits are covered, your HMO plan might have certain procedures to follow after your medical emergency. For example, you might have a specific timeframe in which you have to notify your insurance provider of an out-of-network ER visit. Or an out-of-network hospital might ask you for an upfront payment. Once you've paid the bill, you would need to file a claim and wait for reimbursement from your HMO. 

HMO Pros and Cons

How Much Does An HMO Cost?

Because of its limitations on network size and how you can seek care, an HMO is typically the cheapest type of insurance plan. You pay no deductible, and typical procedures are fully covered after you make a small copayment. So instead of worrying about meeting a deductible before your insurance pays anything toward your medical costs, you'll just have a small copayment to see a doctor or fill a prescription. An HMO's restrictions minimize your out-of-pockets, and encourage you to seek care before health issues lead to more costly medical treatment and services.

As with PPO insurance plans, the specific amount you pay for health insurance costs depends on the insurance provider you choose, and the specific HMO insurance plan you select. For example, a single insurance provider might offer more than one HMO plan. Each plan can differ in network size, coverage for prescription drugs and medical services, and coverage costs (like premiums, copayment’s, and deductibles). So a cheaper HMO plan from that insurer could have a smaller provider network or less generous coverage.

The simplest way to lower your healthcare costs in an HMO health plan is to seek care from doctors and facilities in your plan's network, and with prior approval from your PCP or medical group. A PPO will cover about 70% of the cost of out-of-network services. An HMO, on the other hand, will typically require you to pay full price for out-of-network services.

Are HMOs Popular?

Yes! HMOs are popular plans because they offer manageable care at an affordable rate. When you compare types of insurance plans, you're looking at a trade-off between cost and flexibility. An HMO generally costs less than other plans because you have no coverage for out-of-network care, and you have more limitations on how you seek care from in-network providers. If you like the doctors within an HMO's network, and you don't require much specialized care, your healthcare coverage will be simple and affordable.

How To Make The Most Of An HMO

Because your PCP acts as your healthcare advocate in an HMO plan, it is crucial that you find a PCP you like, and who you feel understands your health needs. Here are some factors to consider about your PCP, so that you get the most value from your HMO plan:

  • Once you've signed up for an HMO, choose a PCP from your plan's list of in-network doctors, and schedule an appointment as soon as possible. That way you'll be familiar with your PCP in case you get sick or need a referral.
  • If you have a family, each family member can choose a different PCP and/or medical group. 
  • Covered dependents have to receive care from your HMO's service area. So if you have children living or traveling away from home, they'll have to make a trip home to see their PCP.
  • If you want to change your PCP or medical group, you can typically do so at anytime by notifying your HMO's insurance provider. Usually, if you make a change before the 15th of the month, you'll be able to see a new doctor on the first of the following month. 

As you do your research, you'll probably come up with specific questions about HMO plans and your health needs. Don't be afraid to ask for help! First Quote Health will direct you to licensed agents who can sort out your concerns, and help you find the best possible healthcare coverage.