Considering enrolling in an HMO? Understand how it works to make sure it will suit your needs. Already enrolled in an HMO? Understand how it works to use your health insurance effectively and to avoid expensive mistakes.

What Is an HMO?

HMO stands for health maintenance organization, a type of managed care health insurance. As the name implies, one of an HMO’s primary goals is to keep its members healthy. Your HMO would rather spend a small amount of money up front preventing an illness than a lot of money later on trying to treat an illness that could have been prevented.

If you already have a chronic condition, your HMO will try to manage that condition to keep you as healthy as possible.

How Does an HMO Work?

• You must have a primary care physician.
  
  When you have an HMO, you’re required to have a primary care physician. You have the right to choose your own primary care physician as long as he or she is in the HMO’s network. If you don’t choose one yourself, the HMO will assign you one.
  
  Your primary care physician, usually a family practitioner, internist or pediatrician, will be your main doctor and coordinate all of your care. Your relationship with your primary care physician is very important in an HMO, so make sure you feel comfortable with him or her. If you don’t, then switch doctors.
   
• Your primary care physician has to refer you for any special treatment.
  
  Your primary care physician will be the one who decides whether or not you need other types of care. For example, your primary care physician decides when you need to see a specialist, need physical therapy, or need medical equipment like a wheelchair or oxygen at home.
  
  In order to see the specialist, get the wheelchair, or have the physical therapy, your primary care physician has to make a referral. Without a referral, you don’t have permission for those services and the HMO won’t pay for them.
  
  Requiring a referral from your primary care physician is part of how your HMO makes sure the treatments, tests and specialty care you’re receiving are medically necessary.
   
• You must use in-network providers.
  
  Every HMO has a list of health care providers that are in its provider network. Those providers cover every imaginable type of health care service including doctors, specialists, pharmacies, hospitals, labs, x-ray facilities, speech therapists and more.
  
  You can only get health care services from in-network providers. If you get care out-of-network, the HMO won’t pay for it; you’ll be stuck paying the entire bill yourself.
  
  Accidentally getting out-of-network care can be a very expensive mistake when you have an HMO. Fill a prescription at an out-of-network pharmacy and the HMO won’t pay for it. Accidentally get your blood tests done by the wrong lab and you could be stuck with a bill for hundreds or even thousands of dollars depending on the blood tests and the lab.
  
  It’s ultimately your responsibility to know which providers are in-network with your HMO. This isn’t very complicated with an HMO like Kaiser Permanente where the network providers are all in the same building and see no one but Kaiser patients. But, if you have an HMO with an insurer like United Healthcare, Aetna, or WellPoint, its in-network providers won’t always be at the same location and often see patients that aren’t HMO members. You can’t assume that, just because a lab is down the hall from your doctor’s office, that lab is in-network with your HMO. You have to check.
  
  There are three exceptions to the requirement to stay in-network:
  
  
  
  1. True emergencies.
  2. The HMO doesn’t have an in-network provider for the specialty service you need. This is rare. But, if it happens to you, pre-arrange the out-of-network specialty care with the HMO—keep your HMO in the loop.
  3. You’re in the middle of a complex course of specialty treatment when you become an HMO member and your specialist isn’t part of the HMO. Most HMOs decide whether or not you may finish the course of treatment with your current physician on a case-by-case basis.
  
   
• Your cost-sharing requirements in an HMO are usually low.
  
  Cost-sharing like deductibles, copayments, and coinsurance are kept to a minimum with an HMO. Many HMOs don’t require any deductible at all and only require a small copayment for other services like doctor visits or prescriptions. Because of their low cost-sharing and low premiums, HMOs are considered one of the most economical health insurance choices.
   
• You don’t have to hassle with bills and claim forms with an HMO since all of your care is provided in-network. In fact, with HMOs, many providers don’t get paid based on providing a particular service to you on a particular day, known as the fee-for-service model. Instead, they get a certain amount of money each month for every HMO member, and they provide whatever covered care those HMO members need. For example, a provider might get $50 per month for each HMO member whether those HMO members use any services that month or not.
  
  This method of paying providers cuts back on office visits, treatments, tests or procedures that aren’t absolutely necessary. There’s no financial incentive for a provider to provide any care that isn’t necessary. It also eliminates the hassle of dealing with claims.

What’s the Difference Between an HMO & Other Types of Health Insurance?

All types of managed care health insurance have some things in common.  For example, no managed care health plan will pay for care that isn’t medically necessary, and all managed care plans have mechanisms in place to help them figure out what care is medically necessary, and what care isn’t.

Managed care plans like PPOs, EPOs and POS plans differ from HMOs and from each other in several ways. Some permit out-of-network care, and some don’t. Some have low cost-sharing requirements while others have hefty deductibles and require significant coinsurance. Some require a primary care physician, but others don’t.

You can learn more about the differences between health plan types in, “HMO, PPO, EPO & POS—What’s the Difference & Which Is Best?”