What is HMO Insurance?

HMO is abbreviation for Health Maintenance Organization. Sometimes HMO and HMO Insurance are used interchangeably. Loosely speaking HMO is a type of managed care plan (The other two being Preferred Provider Organization (PPO) and Point of Service (POS) Plan).

Health Maintenance Organizations are created by bringing together health care providers. Health care providers include doctors, hospitals, clinics, pharmacies, path labs, x-ray centres, and medical equipment manufacturers. Upon association the health care provider abides by a set of rules & guidelines. For example California requires that HMO patients be seen within 10 business days of requesting an appointment. This collection of health care providers is called a network.

This plan brings down the health care cost for both the insured (you) and the ensurer (your employer or the government). Being large organizations, HMOs negotiate good rates with health care providers. Thus the cost of health care comes down.

A Short & Interesting History of HMO

Henery J Kaiser Father of HMO
Henry J Kaiser Father Of HMO

HMO is not a new concept. It dates back to the 1930’s. HMO like organizations were first established in California, Washington, Oregon, and Oklahoma. Industrialist Henry J Kaiser and Dr Sidney Garfield were its pioneers. They marketed the Kaiser Permanente Health Care Program. The program had 100,000 members in the states of Oregon and California during World War II. Mr Kaiser finally settled in Hawaii and entered Hotel industry. Kaiser Permanente entered Hawaii in 1954 and went on to become the state’s second largest insurer.

Resistance from Organized Medicine

In its initial days HMO faced stiff resistance from American Medical Association. AMA feared that the new concept will result in inferior medical care. State medical associations were able to persuade the legislatures in a number of states to outlaw HMO like programs. Physicians participating in these programs were orchestrated by state and county medical societies.

Thankfully HMO overcame the stiff resistance. By early 1970 conservative politicians crossed over the fence. HMO was beginning to be seen as an alternative to socialized medicine. In 1973 the Congress passed the Health Maintenance Organization Act which lead to a rapid growth of HMOs.

How HMO Works?

Lets say John is a member of a Health Management Organization managed care plan and he falls sick. The first thing John has to do is pick up the phone and schedule an appointment with his primary care physician. As a member of HMO managed care plan John cannot directly go to a hospital or a specialist.

What is HMO and How it Works
What is HMO and How it Works?

On the appointed date John visits the primary care physician. Primary care physicians include general practitioners (a.k.a. internal medicine practitioners), gynecologists, pediatrician, and family physician. Members choose their primary care physician when joining the plan. Thereafter the physician manages and coordinates the member’s health care.

The primary care physician examines John. If medical tests are required then he will refer John to a path lab or a x-ray center. Depending upon John medical condition the primary care physician may also refer him to a specialist. Important point to note is that all the service providers that John may be referred to belong to the same network.

What if John decides to visit a service provider outside of his HMOs network. Well, in this case John will most likely be paying 100% of the medical bills from his pocket. There are two exceptions to this rule.

  • In case of emergencies John can visit any health care provider including the ones outside of his HMO’s network.
  • Some plans allow a member to receive care from outside the network. Usually in such cases the member has to bear a large portion of the bill.

Some Experts Don’t Like HMO

A number of experts and analysts are of the opinion that this model of managed care has many shortcomings especially its adverse The main arguments against this model are:

  • Decrease in the earning potential for specialists and increasing earning potential for general practitioners.
  • It influences where a medical doctor decides to practice. It also seems to be influencing physicians’ retirement decisions.
  • Primary care physicians who act as gatekeepers may restrict patient access to specialists.
  • Patients may have to wait for as long as 10 days to consult a general practitioner.
  • There is a shortage of general practitioners.


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