Health Maintenance Organization (HMO) Basics

How Managed Care Supports Affordable Health Benefits

Medical team in discussion in hospital corridor
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As a health care consumer, you've no doubt heard the term HMO before. In fact, this is the most popular of all health care plan models in the market. Where do HMO's come from? Here's some history on this type of employee benefit. In 1973, The Health Maintenance Organization Act amended the previous Public Health Service Act of 1944, and effectively transformed the way health benefits were to be managed in America and around the world.

What is a Health Maintenance Organization?

An HMO is not really that complex. Under current US legal code, an HMO is defined as a public or private entity that meets both of the following requirements:

  1. provides basic and supplemental health services to its members
  2. is organized and operated in a state-approved manner

Therefore, an HMO is an organization that has the sole purpose of providing equal access to health care services in exchange for members agreeing to certain terms. In most cases, this is an agreement to remain within a covered network of providers who have pre-negotiated for lower cost services, while still retaining quality of care. These providers must meet high standards in order to join the network and they must maintain excellent care ratings, so it's a win-win for consumers. In many cases, the HMO supports preventative wellness care, which is what health care providers advocate for.

This works well with corporate wellness programs and recommended routine medical care for certain demographics of the population.

All HMOs undergo close scrutiny by a number of government organizations, including each State Department of Health in which they operate. HMOs came under fire in the late 1990s when it was discovered plan members were not getting the timely response and care they deserved.

Since then, HMO management has improved thanks to electronic data management which streamlines data management and enrollment processes.

How are HMOs Beneficial?

HMO's are still one of the more popular health management options that employers offer, for a number of reasons.

  • They are relatively easy to manage because of flat rate premiums for plan member types.
  • Claims are less worrisome for plan members because they know how much their portion is, including office co-pays.
  • HMOs are often cheaper health care plans for employers and members over the life of the plans.
  • The quality of the doctors and health care centers are carefully monitored to the highest of standards, so plan members know they are getting the best possible care. 
  • Expensive medical claims are controlled by an HMO approval process before they take place, and this also protects consumers from fraud. 

What are Trends in the Health Care Market about HMO Use?

According to the experts in health care, the trend away from traditional fee-for-service health care plans has been steady over the last 2 decades. The US Department of Labor advises that fee-for-service plans accounted for 96 percent of health care plans offered by medium and large public employers in 1984 and 20 years later they account for less than 15 percent of employer-provided health insurance.

 Managed health care policies continue to replace former cash-for-service health programs.​

Many companies offer at least three-tier employee benefits plans, with one or more are as part of an HMO network. This is a cost effective way of managing health care insurance and maintaining quality of care. HMOs continue to be a strong proponent of care in the health insurance market today.