Although HMOs (health maintenance organizations) are defined by law as a subtype of health insurance, they represent a very different approach compared with the other major kinds of health coverage. According to financial advice magazine Kiplinger, HMOs have grown in popularity since they were introduced in the 1970s.
Indemnity Insurance
Preferred provider organizations (PPOs) and point-of-service (POS) plans, the other basic health insurance models, work on an indemnity insurance model. That is, they reimburse the insured for medical costs they incur. HMOs operate on a prepaid care model, in which members pay a fee each month that guarantees them access to low-cost medical care as it becomes necessary.
Models of HMO
Health maintenance organizations structure their services as a group practice or individual practice association. Under group practice structure, all medical staff are salaried personnel of the HMO and paid a flat rate regardless of how many patients they see. In an individual practice association, the staff are paid a flat rate per patient on their roster. Both models still pay their staff independent of how often patients visit or how much treatment may cost.
Preventive Medicine
Preventive medicine is key to health maintenance organizations. By structuring benefits to encourage preventive medicine, wellness education and regular checkups, HMOs save money by treating problems before they begin or while they are still relatively minor. Indemnity plans often charge a deductible for each procedure, usually enough to discourage simple doctor visits. HMOs use a low, often nominal, copayment, meaning members can afford to come in for preventive care.
Advantages of HMOs
HMOs' focus on preventive medicine can mean longer and healthier lifespans for their members. The co-pay structure also makes budgeting for medical care easier to handle. From an employer's standpoint, "Kiplinger" research finds that HMO members miss less work and experience lower health care costs.
Drawbacks of HMOs
The most commonly reported complaint about HMO plans is limited choice of doctor. Members must choose from an individual HMO's roster of staff physicians. This can mean changing your doctor when you join an HMO. This can also limit access to some procedures and second opinions, as many HMOs require you to get permission from your primary care physician to see specialists and other doctors.
Appropriateness of HMOs
According to financial advice specialist Dave Ramsey, HMO plans are best suited for families and others who have frequent medical expenses. The low co-payments as opposed to deductibles can mean real savings over the course of a year. However, the high monthly fee for membership means healthy individuals may be better off with a traditional, lower-cost indemnity plan.
References
- "Exam Cram: Life and Health"; BiSys Education; 2008
- Kiplinger: Health Maintenance Organizations
- Courtney Rogers; Insurance Executive; American Income Life; Richmond, VA
- Missouri Families: What is an HMO?
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