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The Pros and Cons of HMOs

Lower premiums and out-of-pocket expenses, is an HMO right for you?

Written by: Andrew Hall.

Key Takeaways

  • Health Maintenance Organizations (HMO) are a great way to manage your health insurance costs every month.

  • Because HMOs are limited network plans that offer less flexibility, they typically cost less in monthly premiumsA premium is a fee you pay to your insurance company for a health plan coverage. This is usually a monthly cost..

  • HMO may be the right plan for someone who wants lower monthly premiums and maintains good physical health.

  • HMO plan is location-specific, requires referrals, and does not provide out-of-networkOut-of-network refers to doctors, hospitals and other providers that do not have an agreement to treat your health insurance company's clients. Visiting an out-of-network provider typically means more out-of-pocket costs and less coverage. benefits (except for Emergency Care).

Young interracial couple reviews paperwork for their Health Maintenance Organization plan.

What is a HMO?

A Health Maintenance Organization (HMO) is managed care health insurance that arranges networks of healthcare providers (doctors, hospitals, medical specialists, etc.) from which individuals can choose to get care. While offering less flexibility in provider choice, HMOs tend to be a more affordable option.

What are the Pros & Cons for a HMO?

Take a look at some of the pros and cons of HMOs to determine if an HMO is the right fit for you.


Pro: HMOs have slow-rising premiums.

Managed care plans typically offer lower premiums than other plans. This makes HMOs more attractive as health insurance premiums have been exponentially increasing for most plans over the past several years.


Con: HMOs are usually location-specific.

Because HMOs offer limited provider networks, their “in-network” providers are typically limited to geographic areas. While Emergency Services are covered out-of-network, the lack of coverage for all other services can be a problem for families with college students who are out of state or seniors who split their time between different locations each year.


Pro: HMOs typically appeal to younger, healthier populations.

HMO makes sense for someone not likely to require specialized medical care covered by a more expensive policy. Being on an HMO plan with a younger and healthier population helps lower your premium increases year over year.


Con: You’ll need a referral. Every time.

Unlike their Preferred Provider Organization (PPO) counterparts, when you need to see a Specialist on an HMO plan, you will need a referral from your Primary Care Physician. This helps limit unnecessary claims against the policy (and keeps your costs low) but can be an administrative burden when you are trying to coordinate care.


Pro: HMOs can offer higher quality health plans.

While limited networks may seem like a bad thing, some industry experts argue that they can offer higher quality plans by negotiating with specific doctors and hospitals. These care providers may agree to lower their prices to be a part of a specified network (like your HMO’s) and secure more business.


Con: You have to stay in-network.

Again, unlike PPOs, HMOs offer no level of out-of-network coverage. [1] This means that, outside of Emergency Care, if you utilize out-of-network providers or services, you are responsible for 100% of the out of pocket cost.

What's Next?