What is HMO Insurance?

Tricia Christensen
Tricia Christensen

HMO stands for health maintenance organization and HMO insurance is really something of a misnomer. HMOs are medical plans, and not exactly insurance. People pay to belong to the plans which offer them certain types of defined care. Doctors and facilities who participate in these plans aren't just paid when patients get sick, but also when they're well, usually on a per patient basis. This really can't be called insurance, and health maintenance organizations are not insurance companies.

A HMO benefits summary.
A HMO benefits summary.

Belonging to this type of plan means people are limited to using doctors or specialists who are part of the organization. There can be some exceptions under certain circumstances. Should an "HMO insurance company" cover a benefit it cannot offer in a specific location, it may approve using a doctor or facility outside of the system at no additional charge.

The contracted providers who work with an HMO insurance plan are part of the HMO network, and people who belong to this kind of plan must stay “in-network.” The reason that establishing a network is so important is because it lowers costs. Doctors are paid an expected monthly fee instead of by service or by visit. Determining this amount requires care because if the company offers too little, it will lose its contractors. Quality of HMO insurance can partly be assessed by the number of providers it offers the insured. If there are few doctors to see or too few services covered, it will not be attractive to people who want insurance.

Some HMO insurance companies offer a closed system. This means they run the facilities that offer health care to the insured. An example of this is Kaiser Permanente. Only people who have Kaiser insurance use Kaiser facilities, except in rare instances, and thus all of Kaiser’s doctors, allied health professionals and facilities don’t need to worry about working out insurance payments with other health insurance companies.

While this arrangement can be excellent for the company, it may not always be terrific for the insured. Getting second opinions may be challenging, and it is very hard to get approval for treatment out of network, though it can occur. Another inconvenience can be distance and time it takes to get care; patients may have to travel to have surgeries at a Kaiser hospital if one is not available locally and any surgeries not deemed emergencies might mean having to wait.

Other HMOs merely contract with any doctor or hospital that wants to be a part of their organization, and these doctors and facilities are welcome to be HMO providers for several organizations. Many view this as a better arrangement. Though facilities like Kaiser don't actually employ their doctors, the fact that doctors are solely dependent on Kaiser funds makes some patients nervous. Some may feel that a conflict of interest exists when a doctor contracts with a single HMO and derives his/her total salary from it.

There are some hybrid forms of HMO insurance. These include the HMO/PPO, which allows people to use out of network doctors and choose any network doctor without needing approval for care first. It costs more to use out of network providers and usually there is a large deductible that must be met before any payments to out of network providers are made. Another plan is the HMO POS (point of service), which tends to require, like the HMO, that people have a primary doctor. However, people can self refer to specialists, and if they choose out of network ones, they’re likely to pay a higher fee.

For the consumer looking for health insurance, an HMO may be attractive because it often has fairly predictable costs, and might be slightly lower in costs for monthly payments. Many companies that offer health insurance give people the option of HMOs, or HMO/PPO plans. In addition to monthly payments to maintain coverage, people with this type of insurance can expect to pay copayments, which have seen a dramatic increase in recent years. It’s now not unusual for people to pay at least $25-30 US Dollars (USD) to see a standard network doctor. Other increases especially with PPOs include copayments for hospitalizations or paying a percentage of hospital care up to the plan’s deductible limit for the year.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent wiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

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