HMO Insurance Definition
An HMO, or health maintenance organization, is a type of managed health care that is often operated as a for-profit venture. Designed to reduce the operating costs of health care, HMOs concentrate their services on a fixed assortment of services offered to a group of clients within a specific geographical area. HMOs are funded by fixed periodic payments, primarily made in advance. Many companies offer HMOs as an option for health-care coverage to their employees. HMOs are also available as individual insurance plans and as Medicare plans.
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HMOs vs. PPOs
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Preferred provider organizations, or PPOs, are the technical name for what most people refer to as "insurance." Unlike HMOs, PPOs do not restrict policyholders to a specific list of doctors, although they often offer deep discounts for treatment by physicians within the network covered by the policy. PPOs are also much less restrictive than HMOs with referrals to medical specialists. Payment for PPO plans is made by insurance premiums, usually billed monthly, quarterly or semiannually, along with co-payments, or payments made at the time of service for procedures or treatments that are covered by the insurance policy. Most HMOs are legally state or locally administered entities, while PPOs are primarily administered on the federal level.
Medicare HMOs
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A Medicare HMO is an HMO that holds a contract with the federal government to provide health care for individuals who are eligible for the federal Medicare program. Medicare HMOs are administered for individuals to receive medical care through the HMO rather than through the traditional Medicare fee-for-service model. This is done by transferring Medicare proceeds from traditional health-care providers to the Medicare HMO, which often allows Medicare recipients to receive treatment with no payment requirements. This is in contrast to conventional HMOs, which require upfront payments from policyholders.
Advantages of HMOs
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HMOs are often much less expensive in terms of premium payments than traditional PPOs. Also, HMOs often concentrate on preventive care, offering physicals and other services targeted toward maintaining health at no charge to policyholders. Finally, for regular health-care services covered by the HMO, there are usually no requirements to complete claim forms.
Disadvantages of HMOs
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HMOs can be restrictive in the available network of physicians. In some instances, HMO-sanctioned physicians have full practices and have closed their practices to new patients. Obtaining approvals for medical care by specialists can be a major hassle, with HMOs frequently refusing to allow payment for a referral that the primary physician (as well as the patient) views as necessary.
Considerations
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Most HMOs operate by paying member physicians on a per-patient basis, with some systems "penalizing" physicians whose patients use too many high-cost procedures. (Other systems reward physicians whose patients report that they received good treatment.) On the other hand, administrative costs and other overhead expenses for HMOs are typically higher than for other types of insurance plans: an average of 19 percent, as opposed to 13 percent for most nonprofit plans and 3 percent for Medicare programs, according to figures compiled in 2004.
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