HMO (Health maintenance organization) hoped to gain an advantage over traditional Insurance plans by managing their patients' health care and reducing unnecessary services. To achieve this, most HMOs require members to select a Primary care physician (PCP), a doctor who acts as a "gatekeeper" to medical services. PCPs are usually internists, pediatricians, Family doctors, or general practitioners. In a typical HMO, most medical needs must first go through the PCP, who authorizes referrals to specialists or other doctors, if they deem it necessary. Emergency medical care does not require prior authorization from a PCP, and many plans allow women to select an OB/GYN in addition to a PCP, whom they may see without a referral. In some cases, a chronically ill patient may be allowed to select a specialist.

HMOs also manage care through Utilization Review. The HMO providers are monitored to identify providers providing an unusually high amount of services or an unusually low amount of services.  HMOs often provide preventive care for a modest Copayment as a means to keep members from developing some preventable conditions.   It is this inclusion of these services, intended to maintain a member's health, that gave the HMO its name (health maintenance).   When HMOs were coming into existence, indemnity plans often did not cover preventive services, such as immunizations, well-baby checkups, mammograms, or physicals. Some services, such as outpatient mental health care, are often provided on a limited basis, and more costly forms of care, diagnosis, or treatment may not be covered.  The theory was based upon the concept that a small amount invested in prevention would more than offset the occasional very large medical expense associated with more serious conditions that could have been prevented.  Nice concept, but it has not proved to be valid over time so the free or modest copayments have increased to the $25-50 range under most HMO plans.  Procedures that are not considered mainstream, deemed experimental treatments, and elective services that are not medically necessary are seldom covered under the traditional Closed Panel HMO model.

To help you get a better feel for why other people have selected an HMO plan we conducted a survey of those who purchased an HMO plan and our licensed certified field Broker/agents.  The consumers were asked to explain why they made a decision on HMO coverage and the broker/agents were simply asked to provide a profile of their HMO clients.  The net result is we can now present you with a Profile of Who Buys an HMO Plan (Click Here). Click Here     

Another method used by HMOs as a cost containment measure is referred to as Case Management.  Patients with chronic or very serious medical problems are assigned to a case manager.  This is presented to the patient as an expression of the HMO knowing what is best for you and to ensure you get the best.  However, case management is strictly a means to control costs as the patient cannot obtain any care or treatment not specifically authorized by the case manager.   The primary relationship between patient and doctor is now managed by an administrator.    

HMOs often shift some financial risk to providers through a system called Capitation, where certain providers (usually PCPs) receive a fixed payment per member per month and in return provide certain services for free. Under this arrangement, the provider does not have the incentive to provide unnecessary care, as he will not receive any additional payment for the care. Some plans offer a bonus to providers whose care meets a predetermined level of quality.  Some critics regard HMOs as monopolies that distort the market for health care, but most of this criticism came from the lobbyists representing the Health Insurance companies.  Now that insurance companies are also marketing their own HMO plans and HMOs are no longer subsidized by the federal government such claims really no longer apply.   It is important to understand that the HMOs pay their providers in such a manner.  Because of this, there is often tension between the HMO and their physicians. The successful operation of an HMO depends, to a large degree, on how much the HMO can transfer some of its financial incentive to conserve resources to its physicians, while at the same time not generating adversely affecting patient care.

The HMO market is still evolving and now that insurance companies offer HMO options it is difficult to generalize anything to say it applies in all cases.  However, the basic inherent design of an HMO or pre-paid medical care plan puts the interest of the HMO at odds with the patient.  The HMO is happy when they are collecting premiums, but not so happy when a particular patient’s needs exceed what has been allotted to them.  For example, let’s say you obtain a service contract for a computer you purchase.  You pay a fixed fee and the “computer HMO” agrees to fix it no matter what is wrong with it or no matter how many times you may need it fixed.   They are very happy if the computer is used very carefully and infrequently, however, they are not going to be happy with the careless user that is continually messing with their computer and transporting it frequently.   The implication of this will be more clear as it applies to the different types of HMOs discussed below.

Types of HMOs

HMOs operate in a variety of forms. Most HMOs today do not fit neatly into one form; they can have multiple divisions, each operating under a different model, or blend two or more models together.

In the closed panel or staff model, physicians are salaried and have offices in HMO buildings. In this case, physicians are direct employees of the HMOs. In a closed-panel HMO contracted physicians see only HMO patients.  A slight variation often incorporated into a closed panel HMO is the group model, the HMO does not pay the physicians directly, but pays a physician group. The group then decides how to distribute the money to the Individual physicians. The group model evolved to provide closed panel HMOs with access to a larger number of specialists and economically stabilizes the specialty groups because the group receives a guaranteed income as a standby.   The group model HMO essentially disappeared as HMO organizations evolved and restructured. 

Physicians may contract with an independent practice association (IPA), which in turn contracts with the HMO. This model is an example of an open-panel HMO, where a physician may maintain his own office and may see non-HMO members. 

In the HMO Network model, an HMO will contract with any combination of groups, IPAs, and individual physicians. Since 1990, most HMOs run by insurance companies offering other forms of Managed care such as PPO, POS, and indemnity) use the network model.

All of the above have implications over the speed and quality of care a patient may effectively receive.  It is recommended that you contact a Licensed Certified Field Broker/Agent ( Click Here) who can clarify these issues for you before selecting a plan.