Health Maintenance Organization (HMO)

Written By
Paul Tracy
Updated November 4, 2020

What is the Health Maintenance Organization (HMO)?

A health maintenance organization (HMO) is a health insurance provider with a network of contracted healthcare providers and facilities. Subscribers pay a fee for access to services within the HMO's network.

How Does the Health Maintenance Organization (HMO) Work?

An HMO develops its network by contracting primary care physicians (for example, internists and family doctors), specialists (for example, cardiologists and ophthalmologists), and clinical facilities (for example, hospitals and specialty clinics). The HMO agrees to pay these parties specific levels of compensation for a range of services they provide to its subscribers.

In return for a monthly fee, or premium, subscribers are granted access to providers inside the network at no additional cost. Subscribers may access services outside the network with the HMO's approval but may need to pay for part of the services.

Why Does the Health Maintenance Organization (HMO) Matter?

Companies often offer healthcare benefits to employees via HMOs. HMOs are some of the most popular managed care plans that employers provide to their employees.  The premium structure of an HMO reduces healthcare costs for families and, at the same time, benefits network providers by supplying them with more patients.

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