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Health Insurance

What is an HMO?

Have you ever wondered if an HMO is right for you? Find out if an HMO, EPO, or PPO is the way to go. Learn which plan is the most affordable, which has the most options, and which one to choose if you need to visit a specialist.


Health Maintenance Organizations — commonly referred to as “HMOs” — have a network of doctors, hospitals, and healthcare providers agreeing to work with the organization. An HMO differs from other health insurance networks in two main areas: cost and choice. The cost of an HMO is lower than a PPO’s, but the choice of doctors will be less comprehensive. Other healthcare options include an EPO, or a POS, each of which has unique nuances.

What is a Health Maintenance Organization (HMO)?

An HMO is one of several health insurance networks available to help offset health coverage costs. A health insurance network is a group of healthcare providers contracted by a health insurance carrier. Although networks can vary, a typical healthcare insurance plan provides members access to:

  • Primary care physicians
  • Specialty physicians
  • Hospitals
  • Urgent care clinics
  • Labs
  • X-ray facilities
  • Medical equipment providers

HMOs use these networks to streamline communication between providers and policyholders, reducing costs. The four main types of health insurance are:

  • Exclusive Provider Organization (EPO)
  • Health Maintenance Organization (HMO)
  • Point of Service (POS)
  • Preferred Provider Organization (PPO)

Whether you choose an EPO, PPO, HMO, or POS, the coverage amounts and structures of the policies will differ based on your unique needs. In general, an HMO works best for budget-conscious people that are open to using a primary care physician within the HMO’s network.

Primary care physicianYesNoNoYes
Out-of-network careNoYes, partially coveredMedical emergencies onlyYes, with limitations
Pre-approval for medical servicesYesYesYesYes

Do You Need a Primary Care Physician In an HMO?

Many HMOs require the insured to choose a primary care physician (PCP). The subscriber must choose from the HMO’s network of healthcare providers. The PCP is the policyholder’s key point of contact for all their health-related needs, including specialist referrals.

Can You Get Out-of-Network Care In an HMO?

The ability to see out-of-network providers varies from policy to policy. However, the most significant subscriber advantage, low-cost monthly or yearly premiums, only applies if patients strictly see in-network providers.

Aside from what the HMO deems an “emergency” — and it’s worth noting that this definition differs from traditional insurance — those who seek care from doctors outside the HMO network will have to pay for all of the services entirely out of pocket, as the HMO will not pay for out-of-network services.

An example of when an HMO may cover out-of-network services is if you require immediate emergency care and hospitalization; even then, once stabilized, your HMO plan may require you to transfer to a different care facility within the network for the remainder of your recovery.

Do You Need Pre-approval for Procedures In an HMO?

Yes, there are required pre-approvals for certain medical services within an HMO. What services need pre-approval can vary among the type of coverage you’ve selected. However, pre-approval procedures commonly require CT, MRI, PET scans, sleep studies, colonoscopies, and biopsies. Differences in the medical service requirements for pre-authorization can differ depending on which HMO provider you select.

Like most health plans, the pre-approval process is more straightforward if you stick to your plan’s providers. Likewise, the pre-approval process can become much more complicated if you decide to go out of network.

However, pre-approval is not required if you have an emergency or need emergency medication.

What Are the Costs of an HMO?

HMOs are good to help with out-of-pocket expenses, but they are certainly not free. The fees the policyholder must pay come in the form of copayments, deductibles, coinsurance, and a monthly premium.

  • Copayment – Copayment is a fixed amount paid by the policyholder for covered health care services once the one has exceeded the deductible. When you go to your primary care physician (PCP) for a routine medical examination, what you pay (frequently $20) is your copayment.
  • Deductible – This is the amount the policyholder pays for covered health care services before the insurance starts to pay for care. Generally speaking, the higher the deductible, the lower the premium. Likewise, the lower the deductible, the higher the premium.
  • Coinsurance – Coinsurance is the percentage of costs for a covered health care service paid by the policyholder after one pays the deductible. For example, many companies use an 80/20 percentage model, where the insured’s out-of-pocket would be 20%, and the insurance provider would pay the remaining 80%.
  • Premium – The premium is the monthly amount you pay for your health coverage.

One key advantage of an HMO is the premium’s affordability, which is also a big reason this type of health insurance coverage is prevalent.

Advantages of HMO Insurance

HMOs are a popular healthcare alternative for many reasons. An HMO is an affordable option as long as the policyholder stays in-network. But saving money on premiums is just one of the most significant advantages of an HMO plan.

  • Low-cost monthly and yearly premium options. An HMO is an affordable healthcare solution as long as you stay in-network.
  • One doctor administers most medical services. For policyholders that prefer seeing the same doctor consistently, HMOs deliver.
  • Deductible fees are low or non-existent. The fewer out-of-pocket fees, the better.
  • No need to fret over filling out forms. Filling out forms can be a convoluted mess; with an HMO, this is taken care of.

Disadvantages of HMO Insurance

Everyone is interested in saving money on their healthcare. However, if you decide to go with an HMO, it pays to look deeper than just the money saved on premiums.

  • Choosing a Primary Care Physician (PCP) is required. If you currently have a favorite doctor, you should ensure they are in the HMO’s network. If not, you will likely need to find a new PCP.
  • An HMO’s choices of in-network physicians are somewhat limited. HMOs cut costs by stringently sticking to a core of in-network healthcare professionals. There will be far fewer doctors to choose from in an HMO than in a PPO.
  • You can’t go out-of-network for care unless it’s an emergency. Receiving out-of-network care is only an option for medical emergencies. Once the policyholder is stable, a provider may switch them to an in-network doctor.
  • PCP referrals must provide referrals for specialist visits. If you are looking for coverage that requires a specialist — such as neurologists, cardiologists, psychiatrists, etc. — you’ll need a referral from your PCP.

HMOs vs. Other Health Plan Types

HMOs have their advantages, but they aren’t for everyone. Good thing there are other types of health plans to choose from. Here’s a look at how HMOs stack up against PPOs, Exclusive Provider Organizations (EPO), and Point-of-Service plans (POS).

HMOs vs. PPOs

A Preferred Provider Organization (PPO) is a popular alternative to an HMO. PPOs may be expensive if the benefits are more generous. The policyholder’s deductible and out-of-pocket costs will be much higher than other health insurance options. However, the freedom of choice can make the added expense worth it.

Consider a PPO if you don’t mind referrals for specialized care. If you don’t like referrals, an HMO is a better choice. Additionally, a PPO is better if your budget allows for a pricier plan. You get more options for healthcare with a PPO, but you pay for access to a broader network. An HMO might be the way to go if you’re tight on a budget.

Finally, an HMO is a better decision if your PCP is in-network. For some, having a PCP you’ve developed a relationship with is the most critical part of health coverage. If you’re PCP isn’t in the PPO’s network, are you okay with selecting a new one?

HMOs vs. EPOs

Like an HMO, an EPO plan allows policyholders to choose from a network of healthcare providers for service. However, these networks tend to be larger than those within an HMO plan. You must stay in-network for coverage with an EPO, but you’re usually not required to get a referral to see a specialist.

The cost structure is also similar to an HMO’s. Therefore, you should consider an EPO if you can afford it. An EPO’s premium is typically more affordable than PPOs but will be more costly than an HMO. With EPOs, out-of-network service is not covered and will require out-of-pocket payment. An EPO only provides cost-sharing coverage when you use its in-network providers.

HMOs vs. POSs

A Point-of-Service health insurance plan features vital components of a PPO and an HMO. Policyholders can decide to stay in-network or venture outside the provider’s network for more healthcare options. Choosing an out-of-network provider does not require a referral. However, staying within the POS network allows for the most service coverage.

A downside of the POS plan is that the network may be relatively limited, making staying exclusively within the network for your care difficult. While a POS may be more flexible regarding out-of-network care, for this reason, that care can still become more complicated in determining coverage and filing claims. Out-of-pocket costs can also add up, though a POS premium is in the low-to-medium range.

What to Consider When Buying an HMO Plan

When choosing health insurance coverage, your unique medical needs and current providers are essential to consider. Ask yourself the following questions:

  • Do you currently have a PCP? If so, are you willing to switch to a different primary provider if an insurance plan necessitates it? An EPO may suit you if you have a PCP, not within the network but would like to retain.
  • How much do you have budgeted to spend on your health insurance premiums? An HMO may suit your needs if you’re on a strict budget. EPO and POS plans are within a mid-level pricing tier. PPO plans tend to be the most expensive option.
  • Are you okay with out-of-pocket costs? Do you want your copayment to be low and your deductible high, or do you prefer the reverse? In most situations, the more affordable healthcare plans offset discounted co-pays by making the deductible higher. For example, your copayments will be lower with an HMO, but your deductible might be high.

Do your health care needs require a specialist? And if so, are you okay with a referral, or would you prefer this decision be solely yours? If you want more control over what doctors you visit, a PPO allows the most options and freedom of choice. If you want maximum freedom, an EPO might be ideal because they usually don’t require a PCP.