Among the different types of health insurance coverage available, one of the most popular in this country is the HMO plan. HMO stands for “health maintenance organization”; an entity certified under federal standards to provide managed healthcare services to subscribers. HMO plans are remarkably different from what we consider traditional forms of insurance, like auto and homeowners, and significantly different from major medical or catastrophic care insurance policies.
Whether you’re looking for an HMO or major medical coverage, your search for health insurance ratesbegins when you enter your zip code below.
With an HMO, only doctors and facilities that have contractually agreed to be part of the plan provide care. Such doctors and healthcare facilities agree to accept lower reimbursement amounts in exchange for a guaranteed stream of continuous business.
It is a trade-off that was very beneficial to doctors and facilities when HMOs first began a 1970s. However, as the cost of medical care has gone up doctors and medical facilities are finding themselves increasingly on the short end. Many are pulling out of HMOs because they are losing money.
What is the history of the HMO?
The very first HMO was established in 1910 to cover lumber industry workers in Tacoma, Washington. Several other individual HMOs sprung up around the country in the years following, but they were not widely used because their benefits were limited. Even through the 1950s and 60s there were only a handful of HMO organizations around the country. It wasn’t until the 1970s that HMOs took off.
In 1973, the U.S. Congress passed the Health Maintenance Organization Act, which, among other things, mandated that any employer with 25 or more workers, who offered major medical coverage, must also offer an HMO option. The law also imposed a plethora of restrictions on insurance companies regarding how their HMO plans should operate. Some argue that this law is largely responsible for most of the dramatic increases we’ve seen in healthcare costs over the last 30 years. If you’re curious about reading the law, you can find it on the website of the Cornell University Law School.
How is an HMO different from major medical?
Major medical insurance works in a way that is very similar to your auto insurance policy. You pay monthly premiums to protect yourself against financial loss should you ever need medical services for a major illness or accident, a heart attack or a cancer diagnosis, for example. Meanwhile, your insurance company invests your premiums in the hope that it can make enough money to cover any claims it needs to pay out on your behalf.
An HMO plan is focused on managing your everyday healthcare in the hopes that doing so will prevent the need for catastrophic coverage in the future. It pays for routine visits, vaccinations, and so forth.
However, the biggest difference lies in the fact that HMO plans pay out so much money they don’t have a significant amount of resources to invest for purposes of profit. As a result, HMO premiums go up on annual basis at several times the rate of inflation, as evidenced by a 2010 report from ABC News.
In essence, an HMO plan is not a traditional insurance plan in the same vein as major medical, auto, or homeowners insurance. Instead, the HMO organization acts as a middleman to pay your medical bills for you. Unless you need catastrophic care, you are actually paying the entire cost of your medical care through your premiums. If we applied the HMO model to our auto insurance, we would agree to car insurance premiums of $600 a month in exchange for the insurance company paying for our gas, new tires, minor repairs, etc.
How is an HMO different from a PPO?
A preferred provider organization (PPO) is a similar to an HMO in some regards, but quite different in others. Under a PPO plan, subscribers agree to seek all of their medical care from a doctor or medical facility who is part of the plan’s network. As long as subscribers do that, most of the cost of their medical care is covered under their policies. If care is sought outside of the network, the plan usually only reimburses up to a certain amount; subscribers are responsible for the balance.
Essentially the PPO combines some of the best elements of both the HMO and major medical. You get the managed care provided by the HMO along with the flexibility offered with a major medical policy.
PPO plans are gaining popularity across the country because they give greater flexibility to employers and groups offering insurance. They tend to cost significantly less and provide fairly comprehensive coverage. However, the biggest downside is that they typically have lower annual limits and higher deductibles.
Now that HMOs are at the forefront of your mind, it’s time to start searching for health insurance ratesonline. Enter your zip code below to get started.