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How to Select an HMO

To choose an HMO that meets your needs consider what's important to you in each of the following areas:


What is an HMO?

A health maintenance organization (HMO) is a company that offers a predetermined range of health care services to its enrollees for a fixed or prepaid premium. HMOs provide health insurance for almost half of all Californians. HMOs generally cover a comprehensive range of both inpatient and ambulatory care. HMOs are sometimes called health plans or managed care organizations.

What is different about HMOs?

HMOs differ from previous forms of health insurance in the way they manage both the cost of health care and the range of health care services they offer. Prior to HMOs and managed care, most health insurance was known as "indemnity". In an indemnity plan, patients and physicians decide what health services are needed and what they should cost. With indemnity plans, physicians were reimbursed for individual services performed, or patients were reimbursed for medical expenses incurred. This method of paying physicians is also known as fee-for-service. Although indemnity plans placed fewer restrictions on both physicians and patients, health care costs rose rapidly because with indemnity reimbursement, neither physicians nor patients had an incentive to monitor the cost of health services.

HMOs manage health care costs and services in a number of ways. For example, they may contract only with those physicians or medical groups (see below) who have agreed to care for their enrollees at the reimbursement rates provided by the HMO. They may only cover treatments or procedures that the HMO decides is effective and affordable. They may require enrollees to first use less expensive clinicians, tests, or treatments prior to approving more expensive interventions. Or they may require enrollees to contribute to the costs of their care through copayments or deductibles. There may be times when enrollees or physicians disagree with the decisions made by HMOs. Enrollees or physicians have the right to appeal these decisions with the HMO, or if they are not satisfied with the HMO response, with the State of California Department of Managed Health Care.

Are there different types of HMOs?

There are four types of HMOs:

  • Staff model (Closed-panel): The HMO hires its physicians individually and pays them a salary to practice in the HMO facility or clinic.
  • Group model: The HMO contracts with a medical group (see below) and pays them a set amount per patient to provide a specified range of services. The medical group determines the compensation of each individual physician in the practice and often shares profits.
  • IPA (Independent Practice Association): The HMO contracts with individual physicians who see HMO members as well as patients covered by other types of health insurance in their own private offices. Physicians in an IPA are paid on either a capitation or a modified fee-for- service basis.
  • Network: The HMO contracts with a network of medical groups rather than individual physicians. Medical groups in a network may see HMO patients as well as fee-for-service patients.

The HMO contracts with a medical group or groups that operate a network of medical groups rather than individual physicians. Medical groups may see HMO patients as well as fee-for-service patients.

As HMOs have evolved, the distinctions between HMOs and traditional indemnity plans have blurred. Many patients want to be able to decide what physician they will see and what tests or treatments they receive. HMOs have responded by offering (at higher cost!) insurance plans that offer enrollees more flexibility. Two examples of these hybrid insurance plans are point of service, and preferred provider organizations.

Point-of-Service: A health plan that combines features of prepaid and indemnity insurance. Enrollees decide whether to use HMO or non-HMO physicians at the time care is needed, but are usually charged additional fees for using non-network providers.

Preferred Provider Organization (PPO): A combination of hospitals and physicians that agrees to provide health care services to HMO enrollees at discounted rates. PPO enrollees generally have fewer restrictions on services they obtain from PPO hospitals and physicians. PPO enrollees may incur expenses for covered services they receive outside the PPO, if the charge from the non-PPO provider exceeds the PPO reimbursement rate. PPO enrollees now account for close to a third of all HMO enrollees.

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Quality of Medical Care

Poor quality medical care means...

  • You cannot get the treatment you need when you are ill
  • HMO paperwork delays care, and a minor problem becomes a big one
  • Diseases like cancer are not found early when you have a better chance of recovery
  • You weren't taught how to avoid problems that make your condition worse

An HMO that provides good quality medical care means...

  • You get the treatment that has been proven to work
  • Medical problems are found early when they are best treated
  • Doctors listen to your concerns and explain your treatment clearly
  • You avoid complications by getting the right care at the right time

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Quality of Service

Poor quality service means...

  • It's hard to find a personal doctor who you want in the HMO
  • You have a large bill for medical services that you thought were covered by the HMO
  • It's a hassle and takes a lot of time to see a specialist or get care

An HMO that provides good quality of service means...

  • You get care immediately when you are ill or have an urgent need
  • You get answers to questions quickly and courteously
  • You and each family member have a trusted, personal doctor
  • HMO materials clearly explain the rules and your coverage for medical services
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Choice of Doctors

Most HMOs require members to select a personal doctor from a list of doctors who work with the plan. Personal doctors are physicians with special training in one of the four primary care specialties; pediatrics, family medicine, obstetrics and gynecology, and internal medicine. You can expect your personal doctor to be trained in one of the primary care fields. Primary care physicians have the responsibility for providing initial and primary care to patients, maintaining the continuity of patient care, and initiating referrals for specialist care. This means providing care for the majority of health care problems, including, but not limited to, preventive services, acute and chronic conditions, and psychosocial issues. Your primary care physician should be aware of and coordinate the range of health care services you are receiving even if the primary care physician does not provide these services themselves. If you want to continue seeing your personal doctor be sure to check with the HMO to see if your doctor is part of that plan.

If you see a doctor who is a specialist—someone who treats a particular condition or health problem—find out if that doctor contracts with the HMO and if you will be able to continue to get care from that doctor.

A good HMO checks the quality of its doctors. Ask the HMO what steps it takes to make sure that its doctors have a history of good care and service. When you choose a doctor you also choose a medical group. To learn more about medical groups and the differences between HMOs and medical groups click here "How to select a medical group"

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Medical Services Coverage

HMOs are required to cover at least the following basic health care services: usual physician services, hospitalization, laboratory, X-ray, emergency and preventive services, and out-of-area coverage. However, HMOs can vary a lot in how much you pay in the form of monthly premiums for these medical services. HMOs can also charge members a co-pay for these same basic health care services. A co-pay is a cost-sharing arrangement between you and your HMO in which you pay the HMO a fixed fee for a specific service, such as $10.00 for an office visit. The co-pay does not vary with the total cost of the service to the HMO, but one HMO or HMO plan may have higher co-pays for the same service than another. Co-pays are also known as co-insurance.
HMOs can also differ in their coverage of services that are not considered a basic health care service. HMOs may offer special programs for members to help them lose weight, stay physically fit, or stop smoking. You may find that there are fewer services covered for routine checkups or mental health care. If you have special health care needs, such as durable medical equipment, you should check on the coverage and cost to you of the services that are most important to you.
Another important consideration is prescription drugs. Most HMOs offer some type of prescription drug coverage. The medications that the HMO will pay for is known as their formulary. Formularies vary from HMO to HMO. Most HMOs also charge you a co-pay for each covered prescription. Prescription co-pays may vary depending on the cost of the medication, or whether you receive the generic as opposed to the brand name form of the medication. So if you take prescription medications you should check if the medications you are on are covered by the HMO you are considering and find out what your co-pay will be. Your personal physician should also be able to advise you about alternative medications if necessary.

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Rules and Restrictions

HMOs often have rules or restrictions that affect the steps you must take to get care. For example, you may need to get an "ok" from your personal doctor and the medical group to see a specialist or to get certain tests and treatments. When traveling away from home, HMOs often limit the care you can get. Choices of prescription drugs may be restricted to those on the HMO's list. Make sure you understand the rules before you choose a plan.

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Costs to You

When comparing your cost for the HMO be sure to add up your share of the monthly insurance premium and what your co-pay is each time you visit your doctor or get other services that are important to you. Your true costs may be very different from HMO to HMO depending upon the services you use and amount you pay each time you get care.

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