A Health Maintenance Organization (HMO) provides their own network of doctors, healthcare providers, and hospitals. These individuals or organizations agree to accept payment for services rendered at a specific level when working with members, allowing for the costs of care to be kept in check for everyone without reducing the level of care provided.
There are two primary features which set an HMO apart from the other healthcare plans that are available in the United States: choice and cost.
Most HMOs offer lower monthly premiums to their members than other healthcare insurance plans thanks to their cost structure. Many of them have lower copays that patients can pay at the time of service, as well as lower coinsurance needs that help to make them more affordable as well. If you don’t need something more than basic medical care in most years, like vaccinations and an annual checkup, then it works well.
Your choices are limited in exchange for these cost-savings measures, which is why the pros and cons of an HMO are critical to consider.
List of the Pros of an HMO
1. You get to work with a doctor who becomes your primary point of care access.
When you sign up to work with an HMO, then you will be choosing a primary care physician as your first point of access for care. Instead of seeing multiple doctors at once, this one relationship can help you and your doctor get to know one another quite well. This person will work with you to guide your current and future healthcare decisions. As they get to know you, then they can help to provide patient-focused care because of their familiarity with your medical history.
2. The cost of care is usually lower when joining an HMO.
Compared to the cost of other networks or healthcare insurance plans, an HMO is almost always less expensive. The reason why they can achieve this benefit is due to their coverage of only in-network medical treatments. Administrators for the plan negotiate with providers to keep prices low in exchange for offering more access to paying patients within the community. You’ll pay less in premiums and out-of-pocket costs because of these agreements. Even if you have a deductible to meet, the actual payments you make will typically cost less without changing the quality of care that’s available to you.
3. Some HMOs do not require a deductible.
Although the number of plans with a deductible are increasing, HMOs still offer some plans that don’t require this amount before the full benefits kick in. That means you’ll often have a higher copay and perhaps a larger percentage of each service to pay when you visit your PCP, but there are no minimums in place that you must meet before receiving the full amount of services that you receive.
Even when there is a deductible, an HMO typically requires less to be paid during each calendar year when compared to other options.
4. You will not need to prepare claim forms to receive medical services.
Many people enjoy receiving coverage through an HMO because their insurance plan does not typically require a claim form to see a doctor or be admitted to an in-network hospital. The only requirement for care is to present a card or identification which shows that you have proof of insurance. Then you can have a general idea of what your expenses are going to be since the fees from a Health Maintenance Organization are scheduled and predictable like any other fee-for-service provider.
5. There are multiple levels of appeals available to you as a patient.
If your PCP decides that a referral is not necessary for your condition, then you have the right to appeal that finding higher up in the medical network. When there is agreement that you should get to receive the specialized services, then the HMO can overrule the PCP and give you an internal referral to use. Should you lose your appeal, this plan gives you an additional level to make a second appeal on your denial. This structure allows for more people to look at your condition to see what the best results should be for your medical needs.
There is no guarantee that you’ll win an appeal at any stage of the process, but it does give you more chances to be successful with this work when compared to other insurance options.
6. You get to benefit from the efficiencies of a private organization.
When you decide to join an HMO, then you are working with a privately-owned company that negotiates new rates and services within a specific network. You won’t need to worry about the government trying to intervene with your healthcare decisions. Since the goal of an organization is to make money, you may need to make some creative decisions to ensure that you get the care you require, but the efficiencies built into the system will help you to save money and seek out a high-quality treatment plan at the same time.
7. This system creates a network where most people know each other.
When you have multiple care providers involved with your treatment plan, then having all of them know each other helps to coordinate your needs more effectively. Less labor is needed to refer patients throughout the system in an HMO, which provides another layer of cost savings that gets passed along to you. Information sharing is easier, and it prevents unnecessary treatment. Since there are several plans from which to choose with a Health Maintenance Organization, you can find something specific that meets your exact needs.
8. Some HMOs offer dental and vision coverage in addition to original medicine.
Many healthcare plans do not offer access to dental or vision coverage unless you purchase it separately. You will discover that many HMOs do allow you to roll these needed items into your overall plan so that you don’t need to worry about finding an additional provider. Sometimes these benefits occur without an additional cost to the monthly payments that you may through your employer or service provider. That means you and your family can focus on the wide range of care options that you need without worrying about how to pay for multiple plans that might have several different deductible features to meet before receiving full compensation.
9. You will receive access to a care agent, care advocate, or social worker with an HMO.
When you join an HMO, then you will receive access to an agent who can help you to navigate the bureaucracy of the system to ensure that you receive the care that you need. This person will also work with you to explain any changes that are happening with your coverage or if there are any care alternatives available to you so that you can maximize your savings when visiting the doctor. Some will even answer any questions you might have over the billing or invoicing process that happens when visiting an in-network provider with your Health Maintenance Organization.
10. The billing processes with an HMO are usually streamlined and easy to understand.
Have you ever noticed that a visit to the doctor can generate 3-4 different invoices? Under the fee-for-service model, anyone who provides you with a care service has the right to bill you and your insurance for their work. That means your PCP, a laboratory, and any other separate medical facility who helped you in some way could create an invoice of their own to bill for services. When you start working with an HMO, this issue disappears because the billing is usually streamlined, consistent, and easier to understand.
List of the Cons of an HMO
1. Your out-of-network care options are severely restricted.
The reason why an HMO can help to make care costs affordable with their insurance coverage is due to the agreements that they have with local providers. You can choose your doctor, hospital, or specialists for local care based on the contracts they have in place for compensation. That means you are going to pay full price in the United States if you go outside of the network to receive care – even if it is for a second opinion due to a serious illness or disease.
The only exception to this disadvantage is if you have a genuine medical emergency while you are outside of the network. Every HMO treats this issue a little different, but you would typically receive a percentage-based benefit on the final expense based on the condition that sent you to the emergency room.
2. You must navigate multiple layers of service to receive specialist care.
When you are working with an HMO for your healthcare coverage, then the only way to receive care from a medical specialist is to receive a referral from your primary-care physician. If your PCP disagrees with the assessment that seeing a specialist is necessary for your health, then you won’t receive financial permission to make an appointment. You could still go if you want, but then you would pay full price for that privilege.
If you do receive a referral, then you’re stuck going to an in-network care provider to receive the healthcare services you need. For some health issues, there might only be one specialist in your network. That would mean that your choice options would be further limited when seeking relief.
3. It may force you to change doctors if you join an HMO from a different plan.
If you currently have health insurance and you’re thinking about joining an HMO to save money, then you need to be prepared to leave your current doctor. Any medical provider who is not part of the HMO will charge you full price for the services they provide with each appointment. You might discover that a Preferred Provider Organization (PPO) is a better option for you if there is an established relationship with a doctor that you don’t want to give up.
4. You might not have any other option but to join an HMO.
Most HMOs become available through the healthcare insurance benefits that employers offer in the United States. If you work for a small business, then you might discover that this plan is the only option available to you because of its cost-savings features. That can be a costly situation if you require a lot of specialist care if there isn’t much in-network support for your condition.
Talk with your HR representative to see if there are alternative options available for your situation if an HMO is your only choice. There may be some specific provisions or alternatives that could apply in your situation.
5. There are times when the HMO must authorize the procedures or tests.
Let’s say that you go to the doctor because your knee is really bothering you. You slipped in the driveway about a month ago, and now the pain is getting worse instead of better. After you visit your primary-care provider, the recommendation is for you to receive an MRI on the joint to see if there is damage that requires a more serious intervention. Before you can have the imaging done, some HMOs require the medical provider to seek financial authorization for the service. If the insurer doesn’t authorize it, then you’re forced to pay for it or go without, which leaves you in an uncomfortable position.
You can always appeal a decision made by an HMO if it restricts what you or your doctor believes is a necessary service, but there is no guarantee that the outcome will be successful in any event.
6. You will need to have a separate dental plan (and sometimes vision too).
When you enroll in a medical HMO plan, then this coverage extends to your primary-care physician and other in-network providers that can offer interventions whenever there is a health issue that you want to address. If you want to visit your dentist because a root canal is needed, then a separate dental plan is necessary to receive that coverage. You might need a third plan to cover vision needs.
Although there are some HMOs out there that wrap all of these services into one neat package, there is an excellent chance that you’ll be juggling 2-3 premiums with this healthcare option.
7. There is a higher risk of receiving unneeded services with an HMO.
Although there are some HMOs moving toward a value-based patient experience, many of these plans still focus on the fee-for-service model. That means your PCP can bill for any unique services that they offer you during an appointment, including an extra office visit if your time runs long. If you have a doctor who is trying to pad their bottom line, then you might see unneeded requests for service with your visit. Always ask about what you are getting and why it is needed to avoid paying more out-of-pocket costs than what is necessary.
8. If you don’t like your PCP, then you might be stuck.
HMOs might be the least expensive way to access healthcare options in the United States, but it is also the most restrictive. If you have a problem with your primary-care physician, then you are stuck to that doctor unless circumstances change with your coverage. If the managed care plans change, then you might be unable to continue with that doctor. There are times when the medical clinic which supports the physician opts out of the HMO when the contract is over too, which can leave you scrambling to find someone else. Since the premiums are just enough to cover costs, it is not unusual to see a lot of facilities come and go with this plan.
9. Some HMOs do not allow for supplemental insurance coverage.
If you have a Medicare HMO in the United States, then you are not allowed to use supplemental insurance with that coverage. Even when this additional insurance comes from a previous employer or a private company, you cannot use it with this Health Maintenance Organization plan from the government. When you have a severe medical problem, then the coverage offered through supplemental insurance can really help with your finances since it can include extras like travel insurance will paying for all of your care costs. It can also extend hospitalization coverage that you now don’t get if you’re part of the HMO.
10. There could be a long wait to join a PCP in smaller networks.
Doctors have the right to limit the number of patients that they see in some HMOs. If you live in a small community where access to medical care is already a challenge, you might discover that getting on with a doctor to serve as a PCP could be difficult. Even if you are successful with the venture (due to requirements or availability), the wait time for your initial appointment could be as much as three months. That’s why it is imperative to research all of your available options to ensure that your doctor can help you right away.
11. Your PCP might be a long way from your home.
Because you must work with a specific PCP as your first point of care with a Health Maintenance Organization, you might find that traveling to the office of your care provider could be a challenging experience. If you live in a small town, you might be asked to travel several miles to see the closest doctor in the network. If they are unable to accept new patients, then you’d select the next-closest doctor. The current travel time and distance to the doctor is about 20 minutes at a distance of 9 miles in the city, while it is closer to 30 minutes and 22 miles in rural areas – and that is just for routine care. If you want to see a specialist, then you’ll be doing even more traveling.
Conclusion of the HMO Pros and Cons
If you are looking for affordable healthcare solutions through your employee benefits, then an HMO is a reasonable choice to consider if you can manage the restrictions of this plan. You will have limited choice in your PCPs, need to get referrals for any specialist care, and jump through some administrative hoops for specific tests or services if you don’t want to get stuck with a large bill afterward.
An HMO is not the right choice if you or someone in your family requires the ongoing care of a specialist because of the need for referrals with this system. If you rarely go to the doctor outside of your annual appointment, then it is possible to save a significant amount of money with this option.
The pros and cons of an HMO show us that this healthcare plan is not the best option for everyone since the cost savings must come from somewhere. If you can manage the disadvantages consistently well, then you might want to give this option a closer look.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.