A health maintenance organization (HMO) is a specific type of healthcare plan in the United States. Unlike traditional healthcare coverage, a health maintenance organization sets out guidelines under which doctors can operate and restrictions for which healthcare professionals the patients can use. On average, healthcare coverage through the use of an HMO costs less than comparable traditional health insurance, with a trade-off of limitations on the range of treatments that are available.
The HMO has its roots in the early 20th century, when businesses began offering their employees prepaid medical programs under which their care was looked after as long as it fell within the scope of allowed procedures. This type of coverage did well throughout the mid-part of the 20th century, until its use began to decline in the late 1960s and early 1970s. In 1973, the U.S. Department of Health and Human Services passed the Health Maintenance Organization Act, which encouraged and sometimes required certain businesses to include HMOs among the healthcare options that they offered to their employees.
Costs for the Patient
Patients who are part of health maintenance organizations do incur certain costs in addition to the insurance premiums that they pay. They usually must pay small co-pays when they utilize certain services. In addition, if a patient chooses to use a healthcare provider or specialist who has not contracted with the HMO — an "out-of-network" provider instead of an "in-network" provider — the patient must pay the entire cost himself or herself.
The ways in which a health maintenance organization is able to offer cheaper healthcare are twofold. First, by contracting with specific healthcare providers and dealing with large quantities of patients, an HMO is able to negotiate lower prices than the patients would otherwise have to pay. Secondly, by eliminating insurance coverage for treatments that the HMO views as unnecessary and focusing on preventative healthcare with an eye toward the long-term health of its members, the HMO is able to reduce its own costs.
Using the Plan
When a person joins a health maintenance organization, he or she usually is asked to choose a primary care physician (PCP). This doctor then acts in part as the HMO's agent in determining which treatments the patient needs. When the primary care physician determines that the patient needs care that the PCP cannot offer, he or she will refer the patient to a specialist who can fulfill the patient's healthcare needs. For example, a patient who is experiencing chronic foot pain might be referred to a podiatrist, or a patient who has recurring chest pains might be referred to a heart health specialist. Emergency visits are exempt from this referral limitation, of course, and in many cases, women are able to choose their own obstetrician/gynecologist (OB/GYN).
Pros and Cons
The long-term benefits of health maintenance organizations are the subject of much debate. Proponents point out that HMOs offer low-cost healthcare to people who otherwise might be without health insurance. Critics argue that because restrictions are placed on treatments and doctors are encouraged to avoid referring patients whenever possible, the result is that many serious illnesses and medical conditions go untreated.