Understanding HMOs

By Alden Smith

HMOs - PPOs - Self Directed Health Plans - Choosing the Right Plan

An HMO, or Health Maintenance Organization, is a institution that provides health insurance coverage in the United States. The HMO contracts with doctors, hospitals, and other care providers to build a network that provides managed care for members. HMO's were officially created by the Health Maintenance Organization Act of 1973, during the Nixon Administration.

The Health Maintenance Act of 1973 provided grants and loans to organizations to process startups or to expand a Health Maintenance Organization. It also removed various state regulations that restricted federally qualified HMO's. Employers with more than 25 employees were then required to offer the federally certified HMO option along with traditional indemnity insurance. This was called the dual choice provision.

Typically, an HMO provides coverage through the use of a Primary Care Physician, with the mission of managing a person's health care issues, and avoiding unnecessary services. The patient is allowed to chose his Primary Care Physician, who is the care provider that determines whether or not a patient needs a referral to a specialist or other extraordinary services. These PCP's are generally family doctors, internists, pediatricians, or general practitioners. A woman also has the choice of choosing her own OB/GYN, without the need of a referral. Emergency room care typically does not require a referral for treatment.

Be aware that if you visit a doctor outside of the HMO network, you will probably be responsible for the entire cost of medical service. The exception for this would be for emergency medical coverage. Coverage for doctors in the HMO network are generally at no cost out of pocket, although some HMO's will charge a copayment fee. Generally speaking, you will also not be responsible for a large deductible that would need to be paid up front before HMO benefits kick in.

HMO's also manage patient care through a utilization review process. This is generally expressed as the number of doctor visits or access to services that members use per month. This is done to sort out the number of providers that are accessing a high amount of services, which may not be deemed by the HMO as medically necessary. The same principle would apply to the number of members with a low amount of referrals and accesses to services, as it would indicate to the HMO that members are not receiving adequate medical coverage, which could lead to more expensive treatments for the patient in the long run.

Typically, the HMO's aim is to provide preventative maintenance for the member. This is done through the use of a lower than normal copayment or at times done for free. Before HMO's came into existence, the indemnity plans generally did not cover the cost of immunizations, pediatric checkups, and mammograms. The practice of adding these services is what gave HMO's its name.

HMO's also use a practice called case management to identify patients with catastrophic needs, such as diabetes, some types of cancer, asthma, and other chronic diseases. If a person is identified with these needs, a case manager is provided to them to insure that no overlapping care is provided to them, and to insure that they are receiving adequate treatment. The goal is to not allow the condition to get so bad that adequate care cannot be provided.

HMO's will also typically shift some of the risk to the provider of service through a system called capitation. Through this system, the PCP will receive a fixed amount on a monthly basis for each member. In return, the PCP will provide some of the needed services for minimal or no cost. This insures that the PCP will not try to inflate payments from the HMO for unnecessary care. Some HMO plans will offer a bonus to the providers if they meet predetermined levels of quality in the care of patients.

HMO's are not without their critics. There are those that feel that HMO's are monopolies that have the ability to distort the health care market. The cost of health insurance has skyrocketed, making health coverage out of reach for many Americans. The Centers for Disease Control and Prevention's National Center for Health Statistics reports that in interviews conducted from January to March of 2006, 42.4 million people of all ages in the United States were without health benefits of any kind.

HMOs - PPOs - Self Directed Health Plans - Choosing the Right Plan

Alden Smith is an award winning author and regular contributor to DoItYourself.com. He writes on a variety of subjects, and excels in research.

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