What is an HMO?

Understanding your health plan is crucial for accessing the care you need without unnecessary stress. There are many types of health insurance plan networks. A health maintenance organization (HMO) could be the perfect solution if you're looking for a structured, cost-effective way to maintain your health. But it's important to get a handle on how it works, like its network and referral system, so you can make an informed decision.

In this article, we'll cover how HMOs work and why they might be the right fit for your healthcare needs.

In this blog post, you'll learn the following:

• The pros and cons of HMOs.
• How HMOs compare to other types of health insurance plans.
• When you can receive premium reimbursement through your employer.

How HMOs work

An HMO is a type of health insurance plan that provides healthcare services to its members through a specific network of doctors, hospitals, and other healthcare providers. HMOs emphasize preventive care and typically require members to choose a primary care physician (PCP) who acts as the first point of contact for most health concerns. The PCP is responsible for providing general medical services and coordinating any additional necessary care.

Key characteristics and workings of an HMO include:

1. Network of providers: Members are generally required to receive care from a specific network of healthcare providers, except in emergencies. The HMO establishes this network for services to control costs and ensure quality care.
2. Referrals required for specialists: If members need to see a specialist, they typically require a referral from their PCP. This gatekeeping approach helps coordinate and manage care while also controlling costs.
3. Focus on prevention: HMOs emphasize preventive care services, aiming to prevent illnesses before they occur. This includes regular check-ups, screenings, and vaccinations.
4. Cost structure: HMOs typically have lower premiums and out-of-pocket costs than other types of plans. This makes HMOs a more affordable option for many individuals and families.

Advantages of HMOs

KFF¹ found that 13% of covered workers were enrolled in HMO plans in 2024. This includes group and individual plans. However, according to McKinsey & Company, 53% of plans available on the individual market in 2023 were HMOs. It may not be the most popular plan on the group market, but it does provide several advantages for the individual market.

Pros of HMO plans include:

• Lower out-of-pocket costs. This type of health plan generally has the lowest monthly premiums and copayments for medical services.
• Simplicity in choosing providers. When you sign up for an HMO plan, you pick a PCP to serve as your main healthcare contact. Your primary physician oversees your general healthcare, manages your treatment, and provides referrals for specialist visits when necessary.
• Coordinated care. Due to their healthcare provider network, HMO members often have clear guidance on where to seek necessary care. Plus, with your PCP as your healthcare advocate, you can build a close relationship that may lead to more personalized and consistent care.

Disadvantages of HMOs

Although HMO plans offer appealing benefits, there are potential drawbacks you should consider before choosing to enroll.

Cons of HMO plans include:

• Restricted choice of healthcare providers. You can only use in-network providers if you want your HMO to cover the cost of your care. If you see a medical provider who's not on your HMO's list of doctors, you're responsible for the entire medical bill.
• Specialist care requires referrals. If your PCP doesn't refer you to an in-network specialist, your HMO won't cover the cost of your visit.
• Potential for limited coverage while traveling. If you’re outside your network for care and need treatment, your HMO plan covers it if it’s a medical emergency. But your policy specifies what's considered an emergency. If your situation doesn't meet the criteria, you have to cover the healthcare bill yourself.

Cost of an HMO plan

An HMO plan costs an average of $480 per month³, but this number varies depending on several factors, such as your age⁴ and location.

Comparing HMOs with other health insurance options

Now that you've familiarized yourself with HMOs, let's see how they compare to other health plans. While HMOs beat other plan types in price, they may lack in coverage and flexibility.

HMO vs. PPO plan

Preferred provider organization (PPO) plans are the most common type of plan on the group market. According to KFF, 48% of insured individuals were enrolled in PPOs in 2024. However, they aren’t as widely available on the individual market. While PPOs cost more than HMOs, they offer greater flexibility. With this type of plan, your health coverage applies regardless of which doctor you choose. But visiting a doctor outside the plan's network will cost you more money. Additionally, you can consult specialists without needing a referral.

Learn more about how these plans compare.

HMO vs. EPO plan

Exclusive provider organization (EPO) plans cost slightly more than HMOs. They offer coverage only for in-network providers, except for emergency care. If you go out of network, you'll pay the full cost of treatment, just like with an HMO. However, EPOs don’t require primary care doctors. You can also see specialists without a referral, which makes it easier to get the medical care you want without added delays.

HMO vs. POS plan

Point of service (POS) plans provide coverage for both in-network and out-of-network care. But, similar to a PPO, you pay more when you visit a doctor outside the network. Like an HMO plan, a POS plan requires members to pick a primary physician and seek a referral for specialist visits.

Does an HMO health plan work with an HRA?

More and more employers are offering health reimbursement arrangements (HRAs) as opposed to traditional health insurance coverage. This allows them to reimburse employees for the cost of their individual health plans instead of buying a group plan for them.

If your employer offers you an HRA, such as the individual coverage HRA (ICHRA) or qualified small employer HRA (QSEHRA), you can submit your qualifying individual HMO monthly payments for reimbursement.

You can also receive reimbursement for more than 200 types of eligible expenses, including:

• Doctor visits
• Prescription drugs
• Over-the-counter medication

To receive reimbursement from your employer, you need to submit proof of health coverage and your receipts for eligible expenses. If your employer uses PeopleKeep by Remodel Health to administer their HRA, you can submit your documents through the software. Our team of experts reviews your documents and lets your employer know when they're approved for reimbursement.

Conclusion

With several types of health plans to choose from, it's important to understand the intricacies of each one. Overall, HMOs aim to provide efficient and cost-effective care for their members. However, the trade-off for lower costs is reduced flexibility with doctors and specialists. If these limitations don't bother you, an HMO is an affordable way to maintain your health and well-being.

1. KFF
2. McKinsey &Company
3. ValuePenguin
4. Forbes