Health Insurance

HMO Plans: What Are They and How Do They Work?

HMO Plans: What Are They and How Do They Work?

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Health maintenance organizations, HMOs, are a type of provider network that requires beneficiaries to obtain care through that network except in cases of emergencies, making the plans more restrictive but less expensive than other health plans. With an average cost of $427, HMOs are the cheapest provider network available within health insurance.

What is an HMO health insurance plan?

HMO networks contract with primary care physicians (PCPs) and specialists, as well as hospitals and specialty clinics, enabling HMO insurance plans to provide an array of services across the entire spectrum of care and thus focus on prevention, wellness and care coordination. Many HMOs, for instance, charge little or nothing for preventative services such as mammograms, immunizations and well-child visits.

With many HMO insurance plans, beneficiaries designate one of the plan’s medical centers as their usual source of care, making it possible for beneficiaries to receive an array of services at that one location, which can include primary and specialty care as well as prescription drug services. In other words, a continuum of care is provided under one roof, thus promoting coordinated care and services.

Key characteristics of HMO insurance plans

Most major insurance providers offer HMO insurance plans, usually as cheaper alternatives to other insurance plan options such as PPOs, making them highly affordable.

It is important to remember that HMOs are governed by strict rules designed to better control utilization, costs and the management of care. Not only are beneficiaries required to access care specialists within their provider network, but they must also obtain referrals from their PCPs in order to see a specialist, a practice known as prior authorization. The PCP is responsible for managing the patient’s overall care while helping the patient navigate the HMO health insurance system.

With some HMO insurance plans, beneficiaries have to live or work within the HMO’s geographic service area, making it easier for HMOs to determine and set fees based on the service area’s population. This can, however, restrict access to the HMO plans — especially for beneficiaries who travel a great deal.

HMOs, like other health plans, have advantages and disadvantages. Below we have provided some of these pros and cons:


  • Lower costs in the form of cheaper premiums, deductibles and copays.
  • Easy access to PCPs, who act as health care navigators, managing the patient’s overall care while helping the patient navigate the HMO health insurance network.
  • Access to integrated and coordinated care that prevents fragmented, episodic care.
  • A seamless and less complicated billing and claims processing system because nearly all claims are handled in-network.
  • Some HMO health insurance plans do not charge deductibles, freeing beneficiaries from having to meet financial thresholds before coverage kicks in.


  • Beneficiaries are required to obtain care within the HMO network except in emergency situations, curtailing choice and flexibility.
  • PCP referrals are required to see specialists, creating the possibility that beneficiaries could be denied needed specialty care in some situations.
  • Some HMOs require beneficiaries to live or work within the HMO plan area, restricting access to the plans.

Differences between HMO health insurance networks and other networks

The main differences between HMO health insurance plans and other health insurance plans are:

  • Costs (HMOs being the cheaper of the plans)
  • Where you can access care (HMOs being more restrictive than other plans)
  • Whether or not you need a PCP

What follows are brief descriptions of other types of provider network plans:

Preferred provider organization (PPO): A type of health insurance plan where you access care inside or outside of the plan’s network of providers, though you will pay more for accessing care outside of the plan network. You can also see specialists without having to obtain a referral. These plans provide more flexibility than other plans, but they are more expensive.

Point of service (POS): A type of health insurance plan that also allows beneficiaries to access in-network and out-of-network care, though it is more expensive to go outside of the network. Like HMOs, POS plan policyholders are required to select an in-network PCP, who serves as a regular source of care for routine visits. And like HMOs, the PCP has to approve referrals to specialists.

Exclusive provider organization (EPO): EPOs, like HMOs, only pay for in-network care except in emergencies. Unlike HMOs, you don’t need to designate a PCP to manage your care, and you don’t need a referral or prior authorization to see an in-network specialist.


The ability to see a specialist is easier with a preferred provider organization (PPO). Referrals are not needed. With a PPO, it is also possible to go outside of the plan network to receive care, though at a higher cost. Going outside of a plan network does not exist with HMO insurance plans except in emergency situations.

Beneficiaries choosing a PPO may like the flexibility of the plans even though they are more expensive. By choosing a PPO, you are, in effect, paying for more options and flexibility.


POS health insurance plans function as hybrids, meaning they have components of HMOs and PPOs. POS insurance plans, like PPOs, allow beneficiaries to access in-network and out-of-network care, though the cost of going out of network is higher.

Like HMOs, beneficiaries are required to select an in-network PCP who is responsible for managing the patient’s care and approving referrals to specialists. Many POS plans do not require beneficiaries to meet a deductible, a practice followed by some HMOs.


An EPO, like an HMO, is a restrictive type of health insurance policy, only covering services obtained through the provider network except in emergencies. Beneficiaries are not required to select a PCP as their regular source of care, a major difference from HMO and POS plans. Prior authorization is also not needed to see an in-network specialist, another difference between EPOs and HMOs.

How much does an HMO plan cost?

HMO health insurance plans pay designated providers fixed fees for delivering a range of services to HMO beneficiaries. In turn, the beneficiaries then pay monthly premiums to receive care through the insurance plans. By restricting access to in-network providers, the HMO insurance plan is able to provide lower costs and care coordination, usually resulting in cheaper premiums, deductibles and co-pays. The average monthly cost of an HMO health insurance plan is $427 compared to $517 a month for a preferred provider organization, or PPO.

Plan type
Monthly cost

Choosing a plan

The choice between HMOs and other health plans often comes down to price and flexibility, given that quality is the same among the health care plans. HMO network plans are cheaper than PPOs and other health plans, but they are less flexible, providing fewer options and more restrictions.

Many beneficiaries do not like the restrictive nature of HMOs, believing they should have more control over choosing their providers and determining whether they can see specialists without having to obtain approval from a PCP. These policyholders are generally willing to pay more for this flexibility and freedom.

However, some beneficiaries like the convenience of an HMO, having an array of services available to them at one location, including a PCP who manages their care and makes referrals.

In choosing a plan, if flexibility is your main concern, then an HMO should not be your first choice. But if cost is an overriding concern, then an HMO can be an attractive option, especially when considering that prevention, wellness and coordinated care are hallmarks of HMO health insurance plans.


Rate information was compiled using Public Use Files (PUFs) published on the Center Medicare and Medicaid website.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.