What Is An HMO Plan?

A Health Maintenance Organization (HMO) plan¹ is a type of health insurance plan that offers coverage within a specific network of healthcare providers who work for or contract with the HMO. If you’re in an HMO plan, your access to out-of-network care is usually limited to emergencies only, and you’ll need to live or work within the plan’s service area. HMOs are generally lower cost than other types of plans. 

What Is an HMO Plan?

A Health Maintenance Organization (HMO) plan is a type of health insurance plan that offers coverage within a specific network of healthcare providers.

These healthcare providers contract with the HMO and agree to provide care at plan rates, which allows premiums to be lower.

HMO plan members are limited to these in-network providers unless it’s a medical emergency, and they often must coordinate care through a primary care physician. 

How Does A Health Maintenance Organization Plan Work?

An HMO plan gives you access to a network of healthcare providers and hospitals. These are doctors and healthcare providers that have contracted with the HMO to provide care at certain rates and to meet quality standards. In return for sticking to their network, HMOs often offer care at lower prices, and premiums are lower than other types of plans. 

However, your access to out-of-network doctors is limited. You’re usually required to stick to in-network healthcare providers unless it’s an emergency, and you may have to get a referral from your primary care physician (or PCP) to see specialists. There may also be more restrictions on coverage for certain healthcare items, such as tests or treatments. 

Within an HMO, you will often have to choose a PCP, whom you would see for your everyday healthcare. You could seek a referral from your PCP to see other providers within the HMO’s network, but you wouldn’t be able to see out-of-network providers unless it was an emergency situation. (Or you could pay the entire cost out-of-pocket.) 

What Are the Benefits of A Health Maintenance Organization Plan? 

Although they can have restrictions, there are some upsides of having an HMO plan.

• Lower cost: In general, HMOs often have lower premiums and lower out-of-pocket costs than other types of plans.
• Cheaper prescriptions: People with HMO plans also tend to pay less out-of-pocket for prescriptions drugs. 
• Simplicity: There is typically one contact (your PCP) helping you manage your care, and all of your care is usually in-network. 

What Are the Drawbacks of A Health Maintenance Organization Plan? 

There are disadvantages to this kind of health plan, including the following: 

• Limited network: You’ll generally have to stay within the HMO’s network for your healthcare unless it’s an emergency situation.
• Limited area: An HMO usually covers a particular service area, and you’ll need to stay within it to seek care. 

How Does An HMO Differ from A PPO Plan?

A Preferred Provider Organization (PPO) plan offers more flexibility than an HMO plan. You generally have the option to see out-of-network doctors, although you’ll pay more out-of-pocket to do so. And you can usually see a specialist without a referral. Premiums and out-of-pocket costs tend to be higher for a PPO versus an HMO. 

How Does An HMO Plan Differ from A POS Plan?

A Point of Service (POS) plan operates a lot like an HMO, in that you must get a referral from your PCP to see a specialist. But unlike an HMO, you can see out-of-network doctors. You’ll pay higher premiums for the added flexibility in this plan, but still not as much as a PPO. 

How Does An HMO Plan Differ from An EPO Plan?

An Exclusive Provider Organization (EPO) plan operates like an HMO, but with a wider network of healthcare providers and hospitals. Like an HMO, you may have to choose a PCP and you may have to get a referral to see a specialist, but there are more providers to choose from. Premiums are higher for this kind of plan, but still lower than premiums for a PPO. 

How Much Does A Health Maintenance Organization Plan Cost?

Because HMOs are the most restrictive type of health plan, they’re also the least expensive. In 2020, the average monthly HMO premium was $607 ($7,285 annually), according to the Kaiser Family Foundations Employer Health Benefits Survey.² The average monthly premium for a PPO plan, by comparison, was $656.67 ($7,880 annually).

When Can You Go Out-of-Network with A Health Maintenance Organization Plan?

Although the structure of an HMO plan discourages seeking out-of-network care, there are situations when it’s possible to see a medical provider that’s outside your plan’s network. Typically you can see an out-of-network provider or go to an out-of-network emergency room in an emergency. 

That said, frequently your out-of-network benefits end once you’re admitted to a hospital, so make sure you’re admitted to a facility that’s in-network to prevent being responsible for all costs. 

How Common Are Health Maintenance Organization Plans?

When it comes to employer plans, 13% of workers are covered by HMO plans, compared to 47% who are covered by PPO plans, according to the Kaiser Family Foundation’s employer survey.³ There are also regional differences, with HMO enrollment being significantly higher in the West (22%) than in the Midwest (7%). 

Is An HMO Plan Right for You?

Generally, an HMO may be a good choice if low costs are important to you, and if you don’t mind coordinating your care through your primary care physician. However, your choice will also depend on the network—if you have a doctor or group of doctors you see regularly and they aren’t in your HMO’s network, you may prefer a PPO that would allow you to seek out-of-network care. 

Next Steps 

If you’re evaluating employer-sponsored plans and you have questions about what they cover, contact your company’s plan administrator. Otherwise, the health insurance company can answer questions about coverage and costs. It’s important to understand what a plan covers (and doesn’t cover) before enrolling for the next plan year.