Health Maintenance Organization (HMO)

Health Maintenance Organization’s (HMO’s) provide pre-paid healthcare to members of the plan. Doctors that participate with an HMO are usually paid a flat Per Member Per Month (PMPM) fee for all members. This arrangement is referred to as capitation. 

For example, if an insurance carrier determines that an HMO doctor would be paid $20.00 per member per month and he has 100 members, he would receive a check every month for $2000.00.

Since members lose, drop or change coverage very frequently, the PMPM amount could change every month. Although HMO doctors are not being paid on a per service basis, they are still required to bill claims as they normally would. Health insurance carriers use this data to gauge a doctor's overall managed care performance. 

Managed care is a balancing act; the key is to provide quality care that is cost effective. Doctors that do not follow strict managed care practices may end up costing the plan money.  

Member’s that sign up with an HMO plan will be assigned a primary doctor, referred to as a Primary Care Physician (PCP). The PCP’s role is to act as a gatekeeper. They will determine the most appropriate level of care based on the patient’s condition.

Patients with minor illnesses, injuries, or controlled conditions, may be treated on a lower, less costly, level of care. This means minimal follow-up visits and fewer diagnostic tests. Patients with chronic or serious illnesses or injuries may require a more extensive, more expensive, level of care. This means regular follow-up visits, more diagnostic tests and more specialized care.

Members are attracted to HMO’s primarily because of the limited out-of-pocket expenses. In lieu of deductibles and co-insurance amounts, members pay a flat per visit co-payment, usually between $5.00- $25.00. Members should always consult their benefit booklets as additional upfront costs may be required for certain services, for example, allergy tests or certain outpatient surgeries.

Out of network services are not covered under an HMO plan. Most HMO networks include a large panel of providers, of all specialties, that are able to perform a wide range of services. If a service is not available in network, a referral and pre-authorization and/or pre-approval will be required, in advance of service, before any out of network services will be paid.    

HMOs can be organized in several ways. The most common are Staff model and Group model.

Staff Model- All doctors work for the HMO and all care is received at a central facility or location. Kaiser is set up this way.

Group Model- Doctors maintain their own practices. At the time of enrollment, members select a doctor’s office or Independent Provider Association (IPA) and a Primary Care Physician (PCP). Members usually receive care at the PCP’s office.

In this example, the patient would only have to pay $10.00 each time she sees an HMO doctor. The plan does not provide any coverage for services not performed by HMO doctors.


ADVANTAGES & DISADVANTAGES OF HMO PLANS

Advantages to Members Participating in HMO Plans

  • Patients can generally receive quality care for little out of pocket costs.

Disadvantages to Members Participating in HMO Plans

  • Patients do not have the freedom to go outside of an HMO network.

Advantages to Providers Participating in HMO Plans

  • May result in greater, more consistent income.

Disadvantages to Providers Participating in HMO Plans

  • Doctors may have to adhere to the HMO's way of treating patients as they may not have the final decision on what kind of care may or may not be provided.

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