What Is an HMO?

A Health Maintenance Organization (HMO) is a type of network health insurance plan that focuses on prevention and coordinated care using a primary care physician (PCP).

The PCP coordinates members’ care with in-network specialists, so members must receive a PCP’s referral to see any specialist. Out-of-network care generally isn’t covered at all, except in an emergency and other special cases.

What Do HMO Plans Cover?

Most HMO plans cover care and services from in-network primary care physicians, specialists, hospitals, clinics, and pharmacies. The care providers under HMO plans either work for or are contracted with the HMO.

There are a few key points of consideration regarding HMO plans:

HMO Insurance Exceptions

Though out-of-network care is not covered under an HMO, there may be exceptions to this rule such as the following:

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What Is the Purpose of a Health Maintenance Organization?

The purpose of a Health Maintenance Organization is to provide integrated and preventative care while keeping costs low. HMOs rely on in-network physicians to refer their patients to the right specialists and receive the well-rounded care they need.

An HMO would rather spend a small amount of money upfront to prevent an illness than manage large costs later on to treat the illness.

Who Is Eligible for HMO Insurance?

An individual must live in the plan’s service area to be eligible for HMO insurance. Employees may also be eligible if their employer offers HMO plans as part of the company’s health benefits.

HMO vs. PPO: Which Is Better?

Whether or not it is better to have an HMO or PPO depends on several factors, including the general health of the plan’s members, the desired amount of flexibility in choosing doctors and healthcare facilities, and budget constraints.

A Preferred Provider Organization (PPO) offers more flexibility in doctors and facilities than HMOs, because members have more options. Members don’t need a primary care physician’s referral to visit a specialist and have the option to visit out-of-network healthcare providers at a higher out-of-pocket cost. Also, PPOs generally come with higher co-payments and/or deductibles.

Here’s a simple breakdown of PPO vs. HMO:



When deciding between the two plans, it basically comes down to the greater flexibility of a PPO plan versus the lower cost of an HMO plan.

What Is the Difference between HMO and Traditional Health Insurance?

There are three key differences between an HMO and traditional health insurance:

What Is the Main Advantage of an HMO?

The main advantage of an HMO is the affordability. An HMO is especially affordable for people who only need basic medical care such as annual checkups and immunizations.

In addition to lower costs, there are other advantages of an HMO:

There are, however, a few disadvantages of an HMO: