What is an HMO?

When considering health benefits for your workforce, health insurance is a key factor. This is because it helps attract and retain employees, supports their well-being, and reduces absenteeism. However, with many plans available, choosing the right one can be challenging.

This article focuses on exploring HMO meaning, providing insights into how it works and how it might benefit your organization.

What is the HMO meaning and purpose?

HMO meaning refers to Health Maintenance Organization, a type of insurance plan that provides healthcare services to members through a network of doctors, hospitals, and other providers. 

Members subscribed to the HMO have to pay a monthly or annual fee to access the  medical services. 

Here are the major characteristics of the HMO health plan: 

• There are many plans for HMO, meaning that although most plans cater to employees, some are open to individuals such as freelancers, self-employed individuals, or family members.
• The requirements and scope of employer-provided health insurance can also vary significantly, influenced by each country's healthcare system and regulations. For example, Japan employers are required to enroll their employees in the national health insurance system, which provides comprehensive coverage. In Singapore, employers must contribute to the Central Provident Fund (CPF), which includes Medisave for healthcare savings, and often offer private health insurance as a benefit.
• They are of various types, this includes comprehensive HMO plans which are traditional products that cover a wide range of benefits with annual premiums that vary and prices depending on the age bracket. Prepaid health cards on the other hand, are a more affordable option of a HMO plan. The only difference is, prepaid cards coverage is not as extensive as its counterpart and is limited to benefits such as emergency care and patient care. 
• HMOs cost less than other medical plans. This is one of the reasons why they are highly preferred among organizations. However, it comes with certain limitations.

We'd discuss more of HMO's meaning in the next sections. 

How do HMOs work? 

To understand HMO meaning, it's important to consider how they function. This section is dedicated to explaining their operation.

Choose primary care physician (PCP)

Under the HMO plan, members are required to select a primary care physician. The PCP is responsible for managing the member’s overall healthcare (including non-emergency care). Members are allowed to change to another primary care physician if they are unsatisfied with their current one. 

Coordinated care through referrals

If a member requires further care and medical attention, they must first consult with their primary care physician. Once approved, the PCP refers the member to a specialist within the HMO network. The member can then use this referral to make an appointment. However, without a referral, the member might have to pay out-of-pocket.

Focus on preventive care

The HMO plan allows members to receive preventative care free of charge. These services can range from health education, awareness campaigns, routine health screenings, vaccination, and lifestyle modification interventions. This way, employees can detect health problems early, potentially avoid more serious issues, and reduce overall healthcare costs by addressing conditions before they escalate.

HMO vs Health Insurance

HMO vs health insurance is another concept peculiar to the HMO meaning. However, they both differ in their providers and packages. Here's a breakdown of their differences. 

HMOs are offered by HMO companies and they cover mainly out-patient care, in-patient care, emergency care, preventative care and in some cases, life insurance.

Health insurance is typically provided by life insurance companies, with critical illness and life insurance being the two main areas of focus in their insurance packages. 

They also differ in terms of affordability. For example, HMOs negotiate lower rates with hospitals and medical providers. They look for these best packages their members can afford. But with traditional health insurance, patients can choose the Fee-for-Service (FFS) model in which they are expected to pay the hospital directly if they get admitted. This makes it expensive for members. The Preferred Provider Organization (PPO) model also has a higher premium and takes more money out of the pockets of individuals. 

What are the benefits of HMO?

Another way to understand the HMO meaning is by examining its benefits. The following benefits apply to both employers and employees.

Lower premiums 

Providing health insurance can be expensive, especially for large organizations. For example, KFF, a health policy research, polling, and news publication released a recent survey which compared healthcare costs from previous years. From what was observed, the costs had escalated with the average annual health insurance premiums in 2023 being $8,435 for individual coverage and $23,968 for family coverage. This was 7% percent higher than the previous year. And in 2018, the average family premium had increased by 22%. Employers can tackle expensive health insurance costs by opting for HMOs because it aids in managing health insurance costs with its lower premium offering.

Emphasis on preventive care

One of HMOs main offering is preventive care. Preventive care helps to keep members healthy and reduces the need for more expensive treatments by covering routine check-ups, vaccinations, and screenings. 

Provide coordinated care

Finally, HMOs use a primary care physician to manage and coordinate all aspects of a member's healthcare. This approach ensures that care is well-organized and reduces the risk of overlapping treatments or medications. The PCP acts as a central point for referrals and care management.

What are the limitations of HMO?

Another crucial aspect of understanding the HMO meaning is its limitations. If you're considering this option, it's important to be aware of the following drawbacks.

Limited network

Other health plans allow its members to choose from a large pool of doctors, hospitals or specialists. But this doesn’t apply for HMO, meaning members are only allowed access to providers within the network. A limited network may mean fewer top-rated or specialized providers are available. This could potentially impact the quality of care a member receives, especially for complex or rare medical conditions requiring specialized expertise. 

Also, if the network providers are not conveniently located, members may have to travel further to receive care. This can be time-consuming and impractical, especially in rural areas or for those with limited transportation options.

Referral requirements

As mentioned, members require a referral from their PCP to see specialists or receive certain care. This can create delays and may require additional appointments to get the necessary referrals. 

In cases where a member is not able to find the right specialist within the HMO network, they might have to receive treatment from a specialist outside the network. As a result, they incur higher out-of-pocket costs, as these visits are often not covered by the HMO.

Less flexibility

When it comes to healthcare treatment, it’s good to have flexibility. However, the HMO plan's rules and network restrictions can limit members' ability to choose providers and access services. This can affect the subsequent care and treatments that they receive.

Who should consider HMO?

• HMO plans typically have lower premiums compared to other types of health insurance. This makes them an affordable option for individuals or families wanting to reduce their monthly healthcare expenses.

• Those who prefer coordinated care through a primary care physician are also likely to opt for the HMO plan.

• Another category of persons who should consider HMOs are people who value preventive care and routine check-ups.

• Many employers offer HMO plans as part of their fringe benefits package. These plans can be a cost-effective and convenient choice for employees who want comprehensive coverage managed by their employer.

What is covered under HMO?

The following services are covered by HMO.

1. Outpatient care: This includes visits to healthcare providers for diagnosis and treatment that do not require an overnight stay. Routine check-ups, consultations with specialists, minor surgical procedures, and lab tests are common examples of outpatient care.
2. In-patient care: This involves treatment that requires a hospital stay. Surgeries, intensive care, and extended medical treatments necessitate overnight or longer stays in a hospital.
3. Emergency care: This covers immediate medical attention required for sudden and severe conditions. Examples include treatment for heart attacks, severe injuries, or other urgent health crises that necessitate emergency room visits.
4. Preventative care services: This places a major focus on maintaining health and preventing illnesses. Vaccinations, routine screenings (like mammograms and colonoscopies), and health education services fall under preventative care.
5. Prescription medications
6. Specialist care with a referral from the PCP

What are some common exclusions?

1. Out-of-network care (unless in emergencies): Care received from providers who are not part of the HMO network is usually not covered, except in emergency situations. Members must use in-network providers to have their care covered.
2. Elective or cosmetic procedures: Optional procedures such as cosmetic surgeries are not covered under HMO, meaning patients will have to carry the financial burden as it is not considered essential for health.
3. Long-term care or custodial care: Services like nursing home care, long-term rehabilitation, or personal care assistance that help with daily activities over an extended period are generally not covered.
4. Experimental treatments or non-FDA-approved medications: Treatments and medications that are considered experimental or have not been approved by the Food and Drug Administration (FDA) are usually excluded from coverage. These are often not proven to be safe or effective.
5. Some specific therapies or treatments not covered under the plan: Certain therapies or treatments, such as alternative or complementary therapies (e.g., acupuncture, chiropractic care), may not be covered depending on the plan's specifics. Each HMO plan has its own list of covered and excluded services.

How to manage exclusions?

Managing exclusions in an HMO plan involves strategies for handling services not covered by the insurance policy. Here are some tips on how you can do it effectively:

Understand your plan

If you're looking to manage exclusions, the first step would be to review your HMO meaning and plan details to know what's covered and what's not. Knowing these details helps you avoid extra costs. This can be done by reading the summary of benefits, policy details, and any updates from your HMO provider. 

Talk to your PCP

Your PCP can help navigate the exclusions by recommending covered alternatives or necessary referrals within the network. Therefore schedule a consultation with your primary care physician to go over your healthcare needs and limitations of your plans. 

Consider a supplemental insurance plan

Can't find the treatment you want your HMO to cover? It might be a good idea to explore alternatives by looking for community resources, discount programs, or non-profit organizations that provide assistance for excluded services. Better still, you can purchase a supplemental plan that fits your lifestyle and addresses your needs. 

Simplify HMO Management with Omni

Omni streamlines your HMO management by automating time-consuming and repetitive tasks, and frees up your valuable time and energy so you can focus on what really matters — strategically engaging and nurturing your team.

Powering Asia’s fastest-growing, modern companies, Omni’s employee database software scales alongside your company so you can customize and leverage the system to meet your evolving HMO management needs while ensuring compliance. 

Omni allows your organization to securely and centrally manage employee HMO information such as contract, membership ID, compliance documents and more. Our employee self-service portal makes it easy for employee’s to upload and update their information, centralizing critical information such as HMO enrollment forms, communication and reimbursement records, helping ensure your HMO management meets the regulations set by local regulation.

Book your demo with our team today to learn how Omni can help transform your business processes.