What is a 'Health Maintenance Organization - HMO'

A health maintenance organization (HMO) is an organization that provides health coverage for a monthly or annual fee. A Health Maintenance Organization (HMO) is a group of medical insurance providers that limit coverage to medical aid provided from doctors that are under the contract of HMO. These contracts allow for premiums to be lower since the health providers have the advantage of having patients directed to them; but these contracts also add additional restrictions to HMO's members.

BREAKING DOWN 'Health Maintenance Organization - HMO'

An individual that needs to secure his own health insurance plan may find a variety of health insurance providers with unique features. One type of insurance provider that is popular in the health insurance marketplace is the health maintenance organization (HMO) which includes a network of physicians under its coverage.

An HMO is an organized public or private entity that provides basic and supplemental health services to its subscribers. The organization secures its network of health providers by entering into contracts with primary care physicians, clinical facilities, and specialists. The medical entities that enter into contracts with the HMO are paid an agreed fee to offer a range of services to the HMO’s subscribers. The agreed payment allows an HMO to offer lower premiums than other types of health insurance plans, while retaining a high quality of care from its network.

How an HMO Works for Subscribers

HMO subscribers pay a monthly or annual premium to access medical services in the organization’s network of providers, but are also limited to receiving healthcare from these contracted medical providers. An insured must get his care and services from doctors under the HMO network, however, some out-of-network medical care can be covered under the HMO. These types of services include emergency care and dialysis. Furthermore, coverage under a health maintenance organization may require the insured to live or work in the plan's area of network in order to be eligible for coverage. In cases, where a subscriber receives urgent care while out of the HMO network region, the HMO may cover the expenses. Any non-emergency out-of-network care received will be paid out-of-pocket.

In addition to the low premiums, there are typically no deductibles with an HMO. Instead, the organization charges an amount, known as a copayment, for each clinical visit, test, or prescriptions. Copayments in HMOs are typically low and amount to $5, $10, or $20 per care, thereby, minimizing out-of-pocket expenses and making HMO plans affordable for families and employers.

The insured must choose a primary care physician (PCP) from the network of local healthcare providers under an HMO plan. A primary care physician is typically an individual’s first point of contact for all health related issues. This means that an insured cannot see a specialist unless the PCP refers him or her to a specialist. However, certain specialized services, such as screening mammograms, do not require referrals. A specialist that an insured is referred to typically falls within the HMO coverage, therefore the services provided by the specialist will be covered under the HMO plan after copayments are made. A subscriber will be notified if his primary care physician leaves the network, in which case, he will have to choose another physician in the HMO plan.

When deciding whether to opt for an HMO plan, an individual should consider the cost of premium, out-of-pocket costs, if he has a medical condition that requires specialized care, and whether having his own primary healthcare provider is important.

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