HMO insurance - A complete guide

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Insights:

A health maintenance organization (HMO) is a type of plan that requires members to get care within the plan’s network of providers.

If you’re shopping for health insurance, you’ve probably come across the term HMO, which stands for Health Maintenance Organization. HMOs are the most common type of health insurance plan available in the Affordable Care Act (ACA) marketplace and Medicare Advantage.

HMO plans have lower premiums than other health plans, which makes them a popular choice. However, HMO insurance plans also come with limitations and restrictions. Let’s review the positives and negatives of HMO plans to help you decide if an HMO is right for you.

What is an HMO?

An HMO is a health insurance plan that contracts with a provider network of specific doctors, hospitals, and other medical professionals.

An HMO typically only covers medical services received from in-network healthcare providers and facilities. The only out-of-network medical services that an HMO plan will generally cover are emergency care, including out-of-area urgent medical care, and out-of-network dialysis treatment.

Key Takeaways

HMOs are typically cheaper than PPOs, but they also come with more limitations.
HMO plan members generally must stay in-network for care unless it’s an emergency.
The member has to pay for all of the costs for out-of-network care.
HMOs require members to get referrals to see specialists.
HMOs are the most common type of plan in the health insurance marketplace and Medicare Advantage, but aren’t nearly as common in the employer-sponsored market.

How do HMOs work?

HMOs can offer lower premiums than other health plans because of their restricted networks. Doctors within the HMO network agree to accept a certain fixed rate for every medical service, which is why HMOs often cost less than other plans.

Individuals with an HMO can only receive covered care from doctors and hospitals within the network. If you see an out-of-network provider, you’re responsible for paying 100% of the service cost.

Unlike other health insurance plans, HMOs typically require the member choose a primary care physician (PCP), who is responsible for coordinating their care.

“The primary care provider is also the gatekeeper for referrals to specialists,” says Laura Decker, co-founder and president of the Employee Benefits Division at SSGI, an independent health insurance broker.

Another restriction to HMOs is that they usually require referrals to see specialists. That means you have to get your primary care physician’s OK before seeing a specialist. Health plans use referrals as a way to reduce the overuse of health care services.

When you receive care within the HMO network, your insurance company pays for the covered service, minus your copayment or coinsurance if applicable, once you’ve met the deductible.

What do HMOs cover?

HMOs cover a wide variety of medical services, including doctor visits, urgent care, hospitalization, lab tests, imaging, and prescriptions, says Decker.

Preventative care services are typically covered at 100%, with no copayment or coinsurance. But remember, you can only get coverage for these services through an in-network doctor.

Although HMOs offer comprehensive coverage, there can be restrictions in terms of the number of visits allowed. If you’re someone who visits the doctor frequently, you may find that an HMO doesn’t offer enough coverage for your needs. Also, if you regularly see specialists, you may not like getting referrals from the primary care physician.

How much is HMO health insurance?

One of the biggest draws of an HMO health insurance plan is the cost. Generally speaking, HMOs are cheaper than other types of plans, including PPO and EPO health insurance.

“An HMO is going to be the lowest-cost plan available in the marketplace because it provides in-network benefits only and often requires a referral to see a specialist,” says Decker.

HMOs aren’t nearly as common in the employer-sponsored health insurance market. Only 13% of employer-sponsored plans are HMOs.

The average employer-sponsored HMO plan costs $1,212 per year or $101 per month, based on Kaiser Family Foundation (KFF) data. For family coverage, the rate is $5,289 per year or $440 per month.

However, premiums are different for every individual based on factors like your insurance company, the amount of coverage you need, your deductible, and your location.

What companies provide HMO plans?

Many health insurance providers offer HMO plans. You can purchase an individual HMO plan through a private carrier, through the ACA marketplace, or through your employer. Some of the health insurance companies that sell HMOs include:

Blue Cross Blue Shield
Aetna
Cigna
Humana
UnitedHealthcare

When comparing HMO plans, it’s essential to do your research. Many health insurance providers offer multiple HMO plans and some are more flexible than others. Additionally, some providers sell high-deductible HMO plans, which have an even lower premium but more out-of-pocket costs when you need care.

Types of HMOs

HMOs are not a one-size-fits-all policy. There are several HMO models, depending on your insurance provider and your specific plan. Here are the four categories:

Staff model: With the staff model, the in-network healthcare professionals are employed by the HMO and work in HMO-owned medical facilities. Doctors can only see HMO patients.
Group model: A group model HMO doesn’t hire doctors directly. Rather, the in-network physicians work for multi-specialty private practices. The physicians are paid as a group by the HMO, and they decide how the money is distributed among the doctors. In the group model, doctors can only see HMO patients.
Open-panel model: An open-panel HMO model is similar to the group model, but the HMO contracts with doctors in an independent practice association, where physicians are allowed to treat both HMO and non-HMO patients.
Network model: In the network model, the HMO works with multi-specialty group practices, independent practice associations, and independent doctors. Network model plans often have the largest selection of providers.

HMO advantages and disadvantages

If you’re looking for affordable health insurance, an HMO may be a good option for you. However, HMOs also have a few downsides that limit where you can receive treatment.

Before you choose an HMO, it’s important to consider the pros and cons of this type of plan. Here are some of the biggest HMO advantages and disadvantages:

Pros:

Affordable policies with low premiums
Preventative care is typically covered at 100%
Primary care doctor helps coordinate your care

Cons:

Most services are only covered by in-network providers
You usually need a referral to see a specialist
Less freedom to choose providers

HMO vs. PPO

PPO plans, which stands for preferred provider organization, are the most common employer-sponsored health plan. About 47% of employer-sponsored health insurance plans are PPOs, according to KFF.

“The main difference between an HMO and PPO is the network of doctors that a member has access to under their insurance. A PPO never requires referrals to see a specialist and the PPO will reimburse you for out-of-network services, unlike an HMO,” Decker says.

If you travel regularly, a PPO might be a better choice since you may have trouble finding an in-network provider in an HMO if you’re in another state. Even if an out-of-state provider isn’t in your network in a PPO, you can still get care — though you’ll likely pay higher costs.

Besides the network variations, another difference between an HMO and PPO is the cost of coverage. Typically, PPOs are more expensive.

Data from the KFF found that in 2020, the average employer-sponsored PPO health plan costs $1,335 per year for individuals and $6,017 for families. Compared to HMO plans, PPOs cost about $123 more for individual coverage and $729 more for family coverage per year on average.

HMO vs. PPO
	HMO	PPO
Premiums	Usually cheaper	Usually more expensive
Deductibles	Typically about the same	Typically about the same
Coinsurance	Yes	Yes
Must stay within the provider network	Yes	No, but out-of-network usually costs more
Referrals to see specialists	Usually required	Not needed

Frequently Asked Questions

Why would a person choose a PPO over an HMO?

The main reason why someone would choose a PPO plan over an HMO plan is to assess a larger network of doctors and hospitals. Additionally, selecting a PPO means you can see a specialist without a referral from your primary care provider.

“Typically, if an individual has a specific doctor that doesn’t take insurance or doesn’t participate in the HMO network, they will want to enroll in a PPO plan,” says Decker.

How do HMOs affect doctors?

HMO plans affect doctors in a few ways.

When healthcare providers work with an HMO network, they get paid a fixed rate for certain medical services, treatments, and testing. They can’t set their own rates for each service, which is why HMO premiums are usually affordable.

Additionally, most HMO models prohibit doctors from seeing patients that aren’t in the network. For that reason, not all healthcare facilities accept HMO coverage.

“Some doctors choose not to take HMOs at their practice for administrative or financial reasons. The referral responsibility creates additional work for primary care providers as well,” Decker says.

Which HMO model provides its members with the greatest choice of physicians?

An HMO plan with a network model is the most flexible in terms of provider options. Policyholders have the widest selection of doctors, specialists, and hospitals to receive care because the network model contracts with multi-specialty group practices, independent practices, and independent providers.

Elizabeth Rivelli

Contributing Researcher

Elizabeth Rivelli is a freelance writer who covers various insurance topics. Her areas of expertise are life insurance, car insurance, property insurance and health insurance. Elizabeth’s byline has appeared in dozens of online publications, including Investopedia, CNET and Bankrate. She has also written for several insurance carriers.