What is an HMO plan?

HMO is an abbreviation for health maintenance organization. HMOs have their own network of doctors, hospitals, and other healthcare providers that have agreed to accept a specified amount of payment for the services they offer.
What is an HMO plan?

HMO plans are among the most affordable kinds of health insurance. It features affordable premiums and deductibles, as well as set copays for medical visits. HMOs, require you to select doctors from their network. When you enroll in the plan, you'll choose a primary care physician (PCP) to see for regular checks. Before you can visit a specialist, such as a Podiatrist (foot doctor), you must first obtain a recommendation from your primary care physician. Because your PCP is the gateway for all of your healthcare services, it's critical to select the one you can rely on. If you're on a restricted budget and don't have many medical conditions, HMOs are a smart option.

How does an HMO plan work?

HMO plans use what are called in-network providers. An HMO network is only available to individuals who have officially contracted with that HMO plan. Anyone who signs up for this plan is considered in-network. Anyone who does not is considered out-of-network. An HMO plan will not cover any out-of-network expenses. This means that any medical visit or hospitalization with an out-of-network provider will result in you paying the entire out-of-pocket fee for such treatment.

Members oftentimes receive strong discounts for medical care when compared to other plans but are limited to the restricted network of physicians. HMO plans require members to pay deductibles co-payments or coinsurance up to the out-of-pocket maximum. Once the out-of-pocket maximum is satisfied the insurance will cover all services at 100% for the remainder of the calendar year. All plans are different, so your copays, coinsurance, deductibles, and max out-of-pocket will be different.

Example of an HMO

For this example, we are going to use the scenario that Martha is having a baby and is going through in-network providers. This will also include 9 months of prenatal care and hospital delivery.

The plan’s overall deductible $6,000
Specialist copayment $60
Hospital (facility) coinsurance 40%
Other coinsurance 40%
This EXAMPLE event includes services like:
  • Specialist office visits (prenatal care)
  • Childbirth/Delivery Professional Services
  • Childbirth/Delivery Facility Services
  • Diagnostic tests (ultrasounds and blood work)
  • Specialist visit (anesthesia)
Total Example Cost $12,700

For her plan Martha would pay the following:

Cost Sharing
Deductibles $6,000
Copayments $400
Coinsurance $1,100
What is not Covered
Limits or exclusions $60
Total cost for pregnancy $7,560

All plans are different and could offer higher or lower rates. With this example of an HMO plan, Martha would save on average $5,140.00.

Pros and cons of an HMO plan

Like other health plans, HMOs have benefits and drawbacks. Some of these advantages and disadvantages are listed below:


  • Lowering costs through lower premiums, deductibles, and copays.
  • PCPs are easily accessible and operate as health care navigators, overseeing the patient's entire care while assisting the patient in navigating the HMO health insurance network.
  • Because almost all claims are handled in-network, the billing and claims processing system is simplified.
  • There are certain HMO health insurance plans that don't have deductibles, thus beneficiaries are not required to reach certain levels before coverage begins.


  • Except in emergency conditions, beneficiaries must receive treatment from providers in the HMO network, which limits their options and flexibility.
  • Because PCP recommendations are needed to visit specialists, there is a chance that some beneficiaries won't get the specialized treatment they require.
  • Some HMOs limit access to the plans by requiring beneficiaries to reside or work within the HMO plan region.


A PPO (preferred provider organization) makes it simpler to schedule a specialist appointment. There is no requirement to have a referral. The cost of receiving care outside of the plan network with a PPO can be covered but usually at a higher cost. With HMO insurance plans, leaving the network is only possible in the event of an emergency.

If you are wanting a plan with more coverage outside of a network a PPO plan might be for you. What is a PPO plan?