HMO stands for health maintenance organization. An HMO is a type of health plan that covers care only from doctors, hospitals and other providers in its own network, except in an emergency. Most HMOs ask each member to choose a primary care physician (PCP) who handles routine care and refers them to specialists. In exchange for those limits, HMOs usually cost less than PPO plans, both in premium and in what members pay when they get care.
Key takeaways
- Network only. Outside emergencies, care from providers outside the HMO network is generally not covered at all.
- A primary care doctor coordinates care. Most HMOs require a PCP and a referral before seeing a specialist.
- Usually the lower-cost option. Premiums and copays tend to be lower than a PPO with similar benefits.
- Watch the map. An HMO works best when employees and their families live and get care inside the service area.
What does HMO mean?
Health maintenance organization. The name comes from the idea behind the model: the plan organizes a network of providers and pays them to keep members healthy, rather than simply paying claims from any provider a member chooses. Federal law has recognized HMOs since the HMO Act of 1973. In Michigan, HMOs are licensed and regulated by the Department of Insurance and Financial Services (DIFS).
How an HMO works
- Choose a primary care physician. Each member, including each child, picks a PCP from the network. If you do not choose, the plan may assign one.
- Start with the PCP. Routine care, check-ups and most first visits go through that doctor.
- Get a referral for specialists. The PCP refers you to an in-network specialist when you need one. Some HMOs let members see certain specialists, such as an OB-GYN, without a referral.
- Stay in the network. Care from out-of-network providers is generally not covered, so members pay the full bill.
- Emergencies are the exception. Emergency care is covered at any hospital, at in-network cost sharing, under federal law.
HMO vs PPO vs EPO vs POS
| HMO | PPO | EPO | POS | |
|---|---|---|---|---|
| Out-of-network coverage | Emergencies only | Yes, at higher cost | Emergencies only | Yes, at higher cost |
| Primary care doctor required | Usually | No | Usually not | Yes |
| Referrals for specialists | Usually | No | Usually not | Yes, for in-network rates |
| Relative premium | Lower | Higher | In between | In between |
| Best fit | Workforce in one area that values low cost | Workforce that wants choice or lives in several areas | Choice of specialists without paying for out-of-network | HMO savings with an out-of-network safety valve |
For a deeper comparison with Michigan examples, see HMO vs PPO vs EPO for Michigan employers.
Pros and cons of an HMO
Advantages
- Lower premiums, which lowers both the employer and employee share.
- Predictable copays, often with little or no deductible for office visits.
- Coordinated care: one doctor sees the whole picture, which can reduce duplicate tests and unnecessary specialist visits.
Drawbacks
- No coverage outside the network except emergencies, so a favorite doctor outside it is not an option.
- Referrals add a step before seeing a specialist.
- Limited coverage for family members who live elsewhere, such as college students or remote employees. Some HMOs offer a guest or away-from-home program; check before you rely on it.
What employers should check before offering an HMO
- Where employees live, not just where they work. Map home ZIP codes against the network. An employee who lives outside the service area may not be able to enroll at all.
- The hospitals and physician groups employees already use. Disruption is the main source of complaints after a switch.
- Whether to offer it alone or beside a PPO. Many mid-sized employers offer an HMO as the low-cost option next to a PPO, and set contributions so the HMO is the obvious value.
- HSA compatibility. An HMO can be designed as an HSA-qualified high-deductible plan if it meets the IRS deductible and out-of-pocket rules. See what an HSA is.
Narrow networks built for self-funded plans follow the same logic with different trade-offs; see narrow network health plans and our group medical plan buyer’s guide.
More plain-English benefits explainers
- What Is an HSA?: health savings accounts, limits and employer rules
- What Does EE Mean?: EE, ES, EC and family coverage tiers
- What Is Form 1094-C?: the employer transmittal and the 95% offer test
- What Is Form 1095-C?: the employee statement, its codes and deadlines
- What Is an ASO Health Plan?: how administrative services only, self-funded plans work
- How Much Does COBRA Insurance Cost?: averages, deadlines and cheaper options
- What Is a PBM?: how pharmacy benefit managers make money
- What Is EBSA?: the Department of Labor agency that enforces ERISA
- What Is a Broker of Record Letter?: how to change brokers without changing your plan
- Offering Group Health Insurance With No Employer Contribution: a guide for businesses with 2-50 employees
- What Is Commercial Health Insurance?: private coverage versus government programs
- Medical Loss Ratio Rebates: what employers must do with the check
Frequently asked questions
What does HMO stand for in health insurance?
HMO stands for health maintenance organization, a type of health plan that covers care from its own network of providers and usually coordinates that care through a primary care physician.
Does an HMO cover out-of-network care?
Generally no, except in an emergency. Emergency care must be covered at in-network cost sharing even at an out-of-network hospital. Routine care outside the network is usually the member’s full responsibility.
Is an HMO cheaper than a PPO?
Usually. HMOs typically have lower premiums and lower copays than a PPO with similar benefits, because members agree to stay in the network and see a primary care doctor first.
Do you need a referral with an HMO?
Most HMOs require a referral from your primary care physician before you see a specialist. Some allow direct access to certain specialists, such as an OB-GYN. Check the plan documents.
What is the difference between an HMO and an EPO?
Both cover in-network care only, except emergencies. An EPO usually does not require a primary care physician or referrals, so members can see in-network specialists directly. An HMO usually requires both.
Can an HMO be paired with an HSA?
Yes, if the HMO is designed as an HSA-qualified high-deductible health plan that meets the IRS minimum deductible and out-of-pocket maximum for the year.
Not sure an HMO fits your workforce?
CFH Insurance Consultants is an independent employee benefits firm. We are licensed insurance brokers, and for proper coverage of an account we work in teams of five. Send us your census with home ZIP codes and we will show you how the networks available to you line up with where your employees and their families actually get care, before you change anything. Start here, call 248.370.8853, or book a 30-minute call.
This article is general information, not legal advice. Plan rules vary by carrier and plan; always check the plan’s summary of benefits and coverage.
