Health Insurance 101: What Is an HMO?

What are the pros and cons of this type of insurance plan?

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Picking a health insurance plan isn’t the easiest. Often, you’ll receive a few options to choose from, each with their own jargon, acronyms, and prices. You may notice some acronyms in the names of your insurance plan options, like HMO and PPO. So what is an HMO plan (and how is it different from a PPO plan)?

What Is an HMO Plan for Health Insurance?

HMO stands for “Health Maintenance Organization.” It gets its name because the goal is to have a unified system for managing your health care. Its nickname is a “managed care plan” because it usually requires you to have a primary care physician, who will manage your overall care, decide which services will benefit you or not, and refer you to specialists when needed. This system has a couple of benefits:

  • You’ll likely build a strong relationship with your primary care doctor, who will get to know your health needs well
  • Your primary care doctor can help you try to avoid unnecessary costs by only recommending you for the services that will benefit you
  • Your insurance company will pass on these savings to you: HMO plans often have lower monthly premiums (fees), lower prescription costs, and lower out-of-pocket costs

There’s one big catch with an HMO plan. This type of plan will generally only cover “in-network” providers. This means the provider and the insurance company have a contract, which means you’ll get their services for a set price. If you go to an out-of-network provider, your insurance will not cover it, and you will most likely end up paying full price. (This does not apply to emergency care.)

Is This Type of Plan Right for You?

There are numerous benefits of an HMO plan, but it’s not the only type of health insurance to consider. Another option is a PPO plan, or “Preferred Provider Organization.” With a PPO plan, your insurance may cover services from out-of-network providers, but it will typically cost extra. You can save money by seeing in-network providers (hence “preferred provider”).

So is an HMO right for you? That depends on your needs. A con of HMO plans is that you’ll likely have fewer choices when picking a provider since your insurance will only cover in-network doctors (except for emergencies). This is especially an issue if you live in an area that doesn’t offer many providers in the network. If you have limited options, a PPO plan may be a better fit for you.

Under an HMO plan, you also will need to see your primary care physician first before seeing a specialist (such as a gastroenterologist or neurologist). They’ll then refer you to an in-network specialist if needed. This system is meant to save you money—since visits to specialists cost quite a bit more. In many cases, people seek care from a specialist when a primary care doctor could easily treat the issue. However, some people might prefer to just make these healthcare choices on their own.

Finally, HMO plans sometimes have higher deductibles. This is the amount you have to pay before your insurance kicks in to cover the cost. Some people prefer plans with low deductibles because they get help from their insurance sooner, but that’s a personal choice. Plus, you have to weigh that against HMO’s lower premiums and copays.

Getting Help with Insurance Plans

Choosing an insurance plan is no cakewalk, but you don’t have to make the choices on your own. Talk with your insurance representative to learn more about HMO plans. They can go more in depth about the specific plan options you are choosing between, and they can help you decide if it’s the right fit for you and/or your family.