What is HMO and How Does it Work?

What is HMO – Overview?

HMO is short for Health Maintenance Organization. It is a form of health insurance that works through contracts with physicians, hospitals or medical groups to offer health insurance at a significantly reduced rate.

This article explains HMOs in detail, describes their work scope and highlights their benefits.

You can decide if choosing an HMO is better than other insurance providers.

How does an HMO work?

HMOs are usually more affordable than other types of health insurance. However, they also restrict where and who you can see for medical help with insurance.

With an HMO insurance plan, you need to use its network of healthcare providers, hospitals, labs, etc., for healthcare services.

The HMO does not cover medical diagnosis or treatment at a non-HMO network clinic or hospital. However, HMO plans typically cover out-of-network services in true medical emergencies.

With an HMO, you also have to have a primary healthcare provider. This one is where you go for check-ups and regular health concerns.

To use HMO benefits, you will need a referral from your primary care provider before you can go to a specialist or even order medical equipment.

Understanding how HMOs work is crucial when selecting the right health insurance plan, particularly during open enrollment.

This is when you can select or switch your health insurance to a different provider. This will help you avoid incurring unexpected charges after enrolling.

Make sure to follow the steps necessary to get insurance benefits from the HMO.

Need for Primary Care Provider

A primary care provider could be your family physician, pediatrician, internist, etc. These are the primary healthcare professionals who coordinate your care in an HMO.

It is essential to have an amicable relationship with your primary care provider. Unless you feel entirely comfortable with the present one, you can always choose to switch to another primary care physician.

You can switch from your current physician to another within the HMO network. If you don’t choose one, the HMO may assign a primary care provider to you.

Referrals for Special Treatments

In many HMOs, the primary care provider is the one to decide if you need specialist care or not. To do this, your primary care physician must provide a referral for you to receive specialist care. These referrals are typically to specialists within your local HMO network.

The types of instances where you would need a specialist referral from your HMO physician include:

  • Seeing a specialist
  • Getting physiotherapy
  • Obtaining medical equipment, such as a wheelchair

Referrals are needed in such cases to ensure that the tests, specialty care and treatments are medically necessary.

If you don’t have a physician’s referral, you will not have the HMO insurance coverage nor access these specialist services.

The main advantage of this system is that it streamlines care and prevents unnecessary services, although it may require a referral from a primary care provider to see a specialist.

You might also have to pay copays or other cost-sharing expenses for your doctor’s visits.

Use In-Network Healthcare Providers

Each HMO has a list of healthcare services in its provider network.

These providers include several healthcare professionals, such as physicians, pharmacists, specialists, labs, speech therapists, etc.

You may pay hundreds to thousands of dollars when you use these services without HMO benefits.

Hence, it is your responsibility to know the individual healthcare providers within your HMO network.

A simple query or an online search can help you identify the closest healthcare providers under your HMO network.

Are there different types of HMOs

Yes, there are different types of HMO service providers operating in the US, including:

#1. Staff model – These are healthcare professionals solely employed by the HMO and can only see patients enrolled within the HMO.

#2. Group model – These healthcare professionals work at a fixed rate. These types of doctors can only see HMO-enrolled patients.

#3. Network model – This is usually a group of physicians who are under contract with the HMO. These doctors can see HMO-enrolled patients and patients with other types of health insurance too.

Their main goal is to ensure their member’s health. Your HMO can spend a smaller amount to prevent an illness rather than pay extensive bills for treating it later.

If you face a chronic health condition, your HMO will try to manage it to keep you healthy.

What are the Advantages of choosing HMO

A lower premium is one of the most obvious advantages of choosing HMO health insurance. HMO insurance plans tend to have remarkably lower premiums than other health insurance plans.

Apart from that, you also pay comparatively fewer deductibles, co-insurance, and copayments with an HMO.

Some employer-sponsored HMO insurance plans don’t require policyholders to pay any deductible but only a small copayment for selected services.

However, it’s important to note that out-of-pocket costs and deductibles for HMOs can vary widely, with some plans offering lower deductibles and costs than others in the individual health insurance market.

In some areas, HMOs may be one of the few options available in the insurance market.

These plans can have deductibles ranging widely from low to several thousand dollars. In many areas, the choices in the individual market may be limited to specific types of insurance networks.

On the other hand, the employer-sponsored health insurance market has significantly varied choices.


HMOs are said to be among the more budget-friendly health insurance choices. Still, their costs can vary greatly, depending on the region, plan, and if you enroll as an individual or under an employer plan.

HMOs provide extensive coverage with in-network services where a primary care physician normally manages care.

Enrolling in an HMO is an excellent choice as it helps reduce your healthcare expenses when you stay within the network.

Before choosing any plan, make sure to get familiar with the plan. This way, you can decide things according to your healthcare situation.

See Also

What is Medigap

What is NIH?

Highest Paid Doctors

What is a Medical Credit Card

What is Medical Travel Insurance

What is ICD10

Physicians Committee for Responsible Medicine

What is ARP

What is Salvation Army

DHHS Grant Program

Current Version
May 21, 2022
Written By
Shubham Grover
March 23, 2024
Updated By
Andrea Morales G.

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