Health Maintenance Organization (HMO)
A managed care health plan requiring members to use a network of providers and obtain referrals for specialist care.
What is HMO?
A health maintenance organization (HMO) is a type of managed care health insurance plan that contracts with a network of physicians, hospitals, and other providers to deliver care at negotiated rates. HMO members must choose a primary care physician (PCP) who coordinates their care and provides referrals to in-network specialists — members who see out-of-network providers generally pay the full cost themselves. HMOs tend to have lower premiums and out-of-pocket costs than preferred provider organization (PPO) plans in exchange for less flexibility in choosing providers. HMOs are the most common plan type offered through Medicaid managed care programs.
Example
An employee enrolls in her company's HMO option with a $250 monthly premium versus a $420 PPO option. When she develops a knee problem, her primary care physician must provide a referral before she can see an orthopedic surgeon. Because she uses only in-network providers, her total out-of-pocket costs for the year are $800 versus an estimated $1,500 under the PPO — saving $2,240 net of the premium difference.
Source: Centers for Medicare & Medicaid Services — Plan Types