HMOs Explained

Health care in America is changing rapidly. Twenty-five years ago, most people in the United States had indemnity insurance coverage. A person with indemnity insurance could go to any doctor, hospital, or other provider (which would bill for each service given), and the insurance and the patient would each pay part of the bill.

But today, more than half of all Americans who have health insurance are enrolled in some kind of managed care plan — an organized way of both providing services and paying for them. Different types of managed care plans work differently and include health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans.

You've probably heard these terms before. But what do they mean, and what are the differences between them? And what do these differences mean to you?

An HMO is a health care organization created in an effort to lower health care costs for you and for whomever is helping you pay for your health care, such as an employer or the government. If you join an HMO, you get to use their services at a very low cost, much less than if you went to the doctor and paid for them.

HMOs are also appealing to those who pay for health care services, because HMOs are usually large organizations that can buy services for thousands of people and, at the same time, decide what type of care they will receive. Both of these allow HMOs to lower the cost of health care and give companies cheaper health care rates for their employees.

While all HMOs will provide you with written material about how their program works, they all have a few things in common. They all require you to use doctors and hospitals that are "in-network" or part of their HMO plan. Your HMO will provide you with a list of in-network doctors. Also, HMOs usually require you to choose a primary care physician who will be in charge of your health care. If you need other types of care, such as seeing a specialist or going to the hospital, you are first required to get approval from your primary care provider.

The most obvious advantage to belonging to an HMO is cost. First, the premiums of managed care are usually lower than traditional health insurance, which can end up saving you money if you are now paying any of your own insurance costs. Secondly, HMOs and most other types of managed care do not require that you pay for your medical care up front, so there are no claim forms to fill out or waiting periods for repayment. Lastly, many HMOs require only a small co-payment for a visit to the doctor, a hospital stay, or a prescription. This is far less expensive than the usual 80 percent reimbursement of traditional health care insurance.

But there are disadvantages as well. What most people dislike is the requirement that you use only doctors and hospitals that are part of the HMO plan. Also, HMOs operate on the concept of capitation — they receive a flat fee each month for each person they cover. While this creates a good mechanism for cost control, it can also lead to restrictive practices such as difficulty in assessing specialists or special drugs. If you do need specialists care, an HMO will require that you first get approval from your primary care physician, which can be time-consuming and difficult for someone with cancer.

HMOs are the most common form of managed care, but there are many others. They include PPOs and Independent Practice Associations (IPAs), both of which require that you use doctors and services that are in-network. Another type of managed care is a POS plan, which is a combination of in-network and out-of-network care.

By law, people who take part in a managed care plan must be given a basic description of the plan, including what is covered, what is not, and how to appeal a decision. Since medical care is very complex, there are times when something may not be covered in the plan. However, you may be able to appeal and get it paid for. If you are in a managed care plan and have questions about coverage, start with the customer service representative or your own benefits/coverage manager. Don't get discouraged if you are turned down. You have the right to keep appealing until the issue is resolved.

Your doctor can be helpful in advocating for a treatment or service for you. However, if your doctor is part of the managed care plan and disagrees with you, you may want to consider changing doctors within the plan. If this doesn't work, you might have to change your insurance company. Be careful not to cancel your current plan until you have been approved by a new insurance company, HMO, or other managed care plan.

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