Center for a Secure Retirement
What Is an HMO and How Does It Work?

What Is an HMO and How Does It Work?

Medicare Part C plans, or Medicare Advantage plans, are a common alternative to Original Medicare that you may have come across while planning coverage for health care costs in retirement. But before you sign up for a Medicare Advantage policy or other private health insurance, make sure to check the plan's provider network first.

The most common network types are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). So what is an HMO, and how is it different from a PPO? This article will discuss the specifics of the former so you can make informed decisions about your health insurance needs.

What Is an HMO?

A health maintenance organization, or HMO, plan is a type of health insurance plan that has its own set network of hospitals, physicians and other health care providers. Policyholders can only receive coverage for services from in-network providers unless the situation is an emergency. If you go to an out-of-network provider for non-emergency care, the HMO will not cover the cost.

To join an HMO network, a provider must agree to the plan's payment level for medical services. This is a way for the health insurance company to negotiate with the medical providers and potentially reduce costs. The insurer then passes along these savings to policyholders.

Lower Costs

The key advantage of joining an HMO is that the costs tend to be lower than those of other types of health insurance. This includes premiums as well as other out-of-pocket expenses tied to care, such as copayments and deductibles.

While you might see some exceptions, an HMO will generally be less expensive than programs with wider provider networks, such as PPOs. This can make HMOs an appealing option for someone on a budget.

Stricter Provider Network and Referrals

On the other hand, an HMO will have rules and limits regarding which medical providers you can see. First, you can only see doctors who are in the HMO network, so services from other providers will not be covered — except, as mentioned before, in emergency cases.

There are also extra steps involved in seeing a specialist through an HMO, and you can't book these appointments on your own. Instead, when you join an HMO, you pick an approved doctor to be your primary care physician (PCP), and if you need to see a specialist or a different medical provider, you will need to meet with your PCP first so they can determine whether it is medically necessary and give you a referral.

For example, if you have back pain and want to see an orthopedist, your PCP would have to give you a checkup and approve the appointment first. There are exceptions for routine care, such as seeing an OB/GYN for an annual visit, but for the most part, you will need to schedule through your PCP. This is another way that HMOs keep costs under control, as it prevents unnecessary treatments and appointments. Still, this can present an added hurdle if you need to see specialists regularly.

Is an HMO Plan Suitable for You?

If you are in good health and don't typically need care from a specialist, an HMO could be a good choice. Chances are good that the premiums for such a plan will be lower than other options. If you do need specialized care, you can get it scheduled through your PCP, and you can still receive coverage anywhere for medical emergencies. If you have a preferred doctor, you may want to double check that they are part of an HMO's network before you opt in.

However, if you regularly need care from specialists or want the freedom to book appointments with any doctor you prefer, an HMO may not be the right choice. Other types of plans, like a PPO, can make it easier to reach out to specialists without using the referral system.

An HMO plan, like any insurance plan, is a trade-off of costs and benefits. When it comes to paying for retirement health care costs, a Medicare Advantage HMO plan might include some extra restrictions, but it can be a good deal for healthy retirees who are trying to save money.

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