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Health Maintenance Organization / HMO
A Health Maintenance Organization (HMO) is a type of health insurance provider that utilizes a network system in which members are restricted to utilizing doctors and hospitals that are contracted by the HMO. In this way, it differs from the traditional model of health insurance, where members are free to select the doctors and facilities of their choice, and then receive some level of compensation from the insurance organization for the charges incurred (1).
Under an HMO model, doctors and hospitals typically agree to charge the HMO a discounted rate in exchange for the high number of patients that the HMO provides. This allows the HMO to charge a lower monthly rate to members. The HMO further keeps rates down by requiring members to initially go through a primary care physician for screening, which helps eliminate non-essential medical care. It is up to the primary care physician to decide if a patient should be seen by a specialist; members may not go to a specialist directly (1, 2).
Because the system of network physicians and hospitals is less expensive than reimbursing third-party physicians and hospitals, HMOs typically cost less for members and employers than traditional health insurance. While traditional health insurance usually requires large copayments (a portion of the cost of the medical service that the insured individual must pay without compensation), the co-payments required of HMOs are usually relatively small. It is also notable that HMOs do not operate on a system of reimbursement, so members are not required to pay the entire cost of treatment up front (1).
Generally speaking, there are two types of HMOs: IPA and closed-panel HMO. Under an IPA, the HMO has a network of contracts with individual physicians or medical groups, and the physicians use their own offices to provide treatment. The individual physician or medical group may be contracted with several HMOs, and they may continue to service non-members. Under a closed-panel HMO, the physicians are either HMO employees or belong to a group of physicians that contract exclusively with the HMO. Here, they typically practice within facilities owned by the HMO (3, 4).
- "HMOs Explained." From CBSNews.com. Available: http://www.cbsnews.com/stories/2001/05/01/national/main288749.shtml (Accessed August 1, 2007).
- "What is an HMO?" From the website of the State of California's Office of the Patient Advocate. Available: http://www.opa.ca.gov/tips.asp (Accessed August 1, 2007).
- "Independent Practice Association (IPA)." From Rupp's Insurance & Risk Management Glossary. Available: http://insurance.cch.com/rupps/independent-practice-association.htm (Accessed August 1, 2007).
- "Health Maintenance Organization." From the website of the U.S. Department Of Health And Human Services' Centers for Disease Control and Prevention. Available: http://www.cdc.gov/nchs/datawh/nchsdefs/hmo.htm (Accessed August 1, 2007).