SolveYourProblem eLearning Series:
Health Insurance: Your Questions Answered
What does everything mean & how to choose the right policy
( 18 pages )

Health Insurance Providers: HMO's

Health Maintenance Organizations (HMO)

The number of Health Maintenance Organizations (HMOs) is growing by leaps and bounds and is in direct correlation with increasing health care costs.

The purpose of HMOs is to manage health care by using a prepaid model that emphasizes early treatment and prevention. This prepayment is referred to as a service-incurred basis and is paid by the consumer.

This emphasis on prevention such as routine physicals or diagnostic screening is paid for in advance. The model is a direct contrast to health insurance plans that historically did not pay for preventive programs but only paid after the fact for injury and illness.

In theory, the HMOs focus on prevention is ultimately supposed to reduce health care costs. At the same time, HMOs provide medical treatment, hospital and surgical when needed.

There is another way that HMOs differ from the traditional health insurance providers. HMOs have a two step system that is not shared by insurance companies. Under the traditional method, consumers receive health care from the medical profession and the financial coverage from the insurance company.

In sharp contrast, the HMO provides both the health care services AND the health care coverage.

These are combined because the HMO is made up of medical practitioners who provide specific services to HMO members at prices that are pre-set and the HMO member agrees to pay the HMO a specified amount in advance to cover necessary services. Therefore, the HMO is furnishing health services as well as making the financial arrangements.

As we have stated, the emphasis on prevention and the effort to contain costs is the major factor for developing HMOs. However, federal law also encourages the development of HMOs. They may receive government grants as well as require certain employers who offer health benefits, to offer HMO enrollment as an option by meeting certain criteria.

The basic structure of HMOs includes contractual agreements with a variety of facilities and health care providers to provide services to HMO subscribers. Within this structure are four different types, Group, Staff, Network and Individual Practice Association.

Group model – Early on this was the predominant scenario. With this arrangement the HMO contracts with an independent medical group that specializes in a variety of medical services and the HMO in turn provides these services to members. Additionally, the HMO is paying another entity as a whole rather than individuals.

Staff model – This arrangement is pretty self-explanatory wherein the physicians are paid employees working on the staff of an HMO in a clinical setting at the HMO physical facilities. The HMO often owns the hospital as well. In this model, the HMO is taking all the financial risk as opposed to the group model.

Network model – This arrangement works like the Group model with the difference being that the HMO will contract with more than one group to provide the services. The primary purpose for this model is to provide convenience and increase accessibility for their members.

Individual Practice Association Model – This structure is designed to give maximum flexibility to the HMO members wherein they contract individually for all services. There are no separate HMO facilities and all services operate out of their own facilities.

There are several types of groups that may sponsor HMOs, some of which are:

• Medical schools or associations
• Labor unions
• Physicians
• Hospitals
• Insurance companies
• Labor groups
• Consumer groups
• Service organizations (Blue Cross/Blue Shield)
• Government entities

Most HMOs restrict membership to a narrowly defined group. For instance, a labor union might limit enrollment to active members of their union.

HMOs are required to provide the following basic health care services:

• Physicians’ services
• Hospital inpatient services
• Outpatient medical services
• Emergency services
• Preventive services
• Diagnostic laboratory services
• Diagnostic and therapeutic radiology services

Many HMOs may also provide the following, but are not required to do so:

• Prescription drugs
• Vision care
• Dental care
• Home health care
• Nursing services
• Long-term care
• Mental health care
• Substance abuse services

Those who would like supplemental services may purchase them from the HMO only as an addition to the basic health care services that the HMO provides.

Co-payments. HMO members may be charged only nominal amounts for basic services in additional to the original monthly payments. In some cases there may be no additional payments for services. All details are spelled out in a descriptive document which is known as either the certificate of coverage or evidence of coverage.

Gatekeeper. HMOs most often have this type of system wherein a primary care physician must be selected who in turn will authorize all care for a member including referrals to specialists.

Twenty four hour access. Normally members have 24 hour access to the HMO.

Open Enrollment. This term can apply in one of two different ways. An employee sponsored group has a set time period each year when employees may choose to enroll or remain enrolled or change plans. The second meaning is a period each year when an HMO must advertise to the general public on an individual basis.

Nondiscrimination. When HMO services are offered to a group, the HMO may not refuse to cover an individual member of the group due to pre-existing health conditions. This practice is much different from traditional insurers where adverse conditions may preclude enrollment.

Complaints. HMOs must be set up to handle coverage complaints and care complaints. HMO members must receive a document that spells out how complaints can be registered.

Prohibitive practices. In addition to non-discrimination against group members based on their health status during enrollment, HMOs are not allowed to cancel or dis-enroll members because of their current health status or the amount of usage of health services. HMOs are also not allowed to use words that may imply that the HMO provides insurance in the traditional manner.

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