Key takeaways

HMO stands for Health Maintenance Organization, a health insurance plan that requires using in-network healthcare providers and typically doesn’t cover costs for out-of-network services unless it’s emergency care.
When enrolled in an HMO, one must select a primary care physician (PCP) within the network who coordinates all medical care, including referrals to specialists for more specific health issues.
HMOs are known for having lower premiums compared to other health plans, making them a cost-effective option for individuals who primarily need preventive care and are willing to have limited provider choices.
Unlike HMOs, PPOs (Preferred Provider Organizations) offer more flexibility by allowing visits to out-of-network providers without a referral and covering some of the costs, appealing to those who prioritize access to a broader range of healthcare providers.

Knowing which health insurance plan to choose can be a tricky decision. Not only do you have to weigh the costs with your health needs, but sometimes the terms and offerings are just plain confusing. In our Healthcare Defined series, we try to break down this complex language. Here, we discuss the health plan known as an HMO.

What does “HMO” stand for? What does it mean?

HMO is an acronym for “health maintenance organization.” It’s a type of health insurance plan that requires you to use only “in-network” healthcare providers. These are doctors (as well as other medical services like labs and hospitals) that have a contract with your insurance plan. You can go to providers outside of your network for medical services, but an HMO plan typically won’t cover the costs unless it’s for emergency care.

It’s important to note that if you’re having a medical emergency, you should get to the nearest hospital—regardless of whether or not your HMO contracts with it. According to healthcare.gov, all plans should help you pay for emergency care, regardless of whether you go to a doctor or hospital within the HMO’s network of providers or not.

HMOs work like traditional health insurance plans in that you:

pay a monthly premium (a recurring fee to have health insurance), and
have to pay copays (set fees you’re charged for services like a doctor’s visit or X-ray), deductibles (the amount you’re required to pay annually before your health insurance starts covering costs), and coinsurance (the percentage of the total cost of care you pay after you’ve met your deductible).

According to healthinsurance.org, HMOs have become more popular than many other healthcare plans in the United States since the federal government’s Affordable Care Act (ACA) took effect in 2014. The California Office of the Patient Advocate notes that nearly 50% of California residents are covered by HMOs.

How do HMOs work?

When you select an HMO for your health insurance plan, you must choose a primary care physician (PCP) within the plan’s network who then coordinates all your medical care. (If the doctor you’ve been using isn’t in the HMO’s network, you may have to choose a new one.) This doctor will take care of your preventive healthcare needs, like your annual checkup, immunizations, and also some routine medical care.

If you have Medicare, you can choose to get an HMO-style insurance plan through the Medicare Advantage program (also known as Medicare Part C)—as opposed to Original Medicare, which does not use a network of doctors.

If you need to see a specialist for a medical problem—for example, you’re a runner who tore an ACL—you’ll have to get a referral from your PCP for an in-network provider. If you go without a referral, or decide to see someone out of network when it’s a non-emergency, you may be responsible for all of the cost of the care that doctor gives you. In addition, women can usually go to an in-network obstetrician/gynecologist for prenatal and well-woman care without a referral and have the services covered. But still, so you don’t get stuck for care you thought was covered by your health insurance plan, it’s essential that you read your HMO’s plan details and understand exactly what services you’ll be held liable for should you go out of network.

Why would someone choose an HMO?

An HMO is a relatively more restrictive form of health insurance as it limits which doctors it will pay through insurance. If you opt to go out of network, you could get stuck paying the entire cost of that care. But, on the plus side, because you’re more limited, you generally pay less in health insurance premiums for HMOs versus other health plans. That can be a boon for a relatively young, healthy person who typically only accesses health care for preventive care, such as a yearly checkup. In addition to lower health coverage costs, Kaiser Permanente notes that some of the advantages of HMOs are:

Lower-cost for prescription medicines, and
Having one doctor who gets to know your medical needs and coordinates all your care.

When cost is more a factor over flexibility, an HMO could be the right health insurance choice for you.

What’s the difference between an HMO and PPO?

PPO is another acronym—this one stands for “preferred provider organization.” PPO plans differ from HMO ones in that they allow you to go out of network for care without a referral and without having to pay the full cost when you do so. You don’t even need to select a primary care doctor. While you’ll save money staying with network providers, a PPO will generally pay for at least some of the out-of-network care you receive. For example, your PPO may pay 80% of your medical bill when you visit an in-network provider (and you’ll pay 20%). But when you go out of network, it may only pick up 60% of the cost—leaving you to fork over the cost for 40%. A PPO is an attractive option for people who like their team of doctors and don’t mind paying extra for the freedom of being able to access them when needed. If you have Medicare, PPOs are also available under the Medicare Advantage program.

For more information, read our article on HMO vs. PPO.