What Is an HMO Insurance Plan and How Does It Work?

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A health maintenance organization (HMO) plan is a type of managed care health insurance that contracts with doctors and facilities so policyholders can receive care without incurring a deductible. HMOs can be a cost-effective alternative to more expensive fee-for-service plans, such as preferred provider organizations (PPOs).

Keep reading to see how you can get an HMO and how they differ from a PPO, an exclusive provider organization (EPO) and a point of service (POS) plan.

Key Takeaways

  • HMOs do not allow users to get healthcare outside of the plan’s network unless it is for emergency services or possibly dialysis.
  • HMOs usually either have a low deductible or no deductible when seeing an in-network provider.
  • HMOs require a referral from a primary care physician in order to see a specialist.
  • HMO insurance covers preventive care, doctor visits, hospitalizations, surgeries and often prescription drugs.
  • You will face higher out-of-pocket costs if you seek care outside of an HMO network.

How Does HMO Insurance Work?

Health maintenance organization (HMO) plans, like the ones available through Cigna and Aetna, contract with a network of doctors and medical facilities that policyholders can use for their medical needs. Members can see providers within this network usually without being charged a deductible.

If it’s not emergency care, HMO members will have to pay for out-of-network services out of pocket.

Due to this inflexibility, HMOs are relatively cheaper than other plans that provide some coverage for out-of-network care.

HMO Rules for Subscribers

HMOs do not allow users to get healthcare out of their plan’s network unless it is for emergency services or possibly short-term dialysis if you’re outside of your plan’s area.[1] Therefore, consumers should double-check if their preferred doctor and facilities are in-network before buying an HMO plan. Deductibles are usually waived with in-network medical care but copays will still apply for care considered non-preventative, such as clinical visits, prescriptions or tests.

Primary Care Physician

Those with an HMO will need to both elect a primary care physician (PCP) and obtain a referral from them in order to see a specialist. Keep in mind that certain specialized services such as mammograms, may not require a referral.

Once your PCP has deemed it necessary for you to seek extra medical assistance, they will give you a referral and send you to a specialist. While this may seem time-consuming, having a long-term PCP can be a massive benefit to your well-being because they will become familiar with your medical history and healthcare needs. This can contribute to more well-informed decisions on how to treat medical conditions that surface throughout your life.

Should your PCP leave your network, you will be notified and you will need to find a new PCP.

What Does HMO Insurance Cover?

HMO insurance typically covers a range of healthcare services provided within its network of doctors and hospitals. This includes preventive care, doctor visits, hospital stays, surgeries and sometimes prescription drugs. However, the specifics of coverage can vary by plan, so it's essential to review your policy details or consult your HMO for the exact services covered.

What Isn’t Covered?

HMO insurance usually doesn't cover:

  • Services provided outside of its network, unless it's an emergency
  • Cosmetic procedures that are not medically necessary
  • Treatments that the HMO deems experimental or not standard practice
  • Some prescription drugs, especially if they're not on the plan's approved list (formulary)
  • Certain specialized treatments or procedures without prior authorization
  • Over-the-counter medications and supplies, unless explicitly specified in the plan
  • Services not deemed medically necessary by the HMO's criteria

What Happens if I Seek Care Outside of an HMO Network?

HMO plans do not cover out-of-network medical services, which means that you will pay for such services entirely out of pocket. The only exception is a medical emergency, such as if you need to be transported to the nearest emergency room, even though it’s from an out-of-network facility. Always check your plan's details or consult with your HMO before obtaining care outside the network to understand potential costs and coverage.

How Much Does HMO Insurance Cost?

HMO plans will generally have the lowest cost of any other insurance plan type due to their inflexible nature with coverage. HMOs are designed as cost-effective alternatives to traditional or indemnity plans. The HMO cost will vary by person and will be influenced by several factors, such as:

HMO insurance is offered in five tiers, similar to other healthcare plans: bronze, silver, gold, platinum and catastrophic. Whichever tier you select will determine the cost of your insurance. The health plans in the bronze tier will have the lowest monthly payments and the largest out-of-pocket expenses, while those in the platinum tier have some of the highest monthly premiums but significantly reduced out-of-pocket expenses. The level of care being provided is not gauged by these tiers.

Why Are HMOs Less Expensive?

HMOs often cost less because they carry more restrictions than other plans. Specifically, you are only covered for care provided within the plan’s network — you’ll have to pay out of pocket if you go outside the network. In addition, you are also required to elect a PCP and obtain a referral before you can see a specialist.

How Does HMO Differ From Other Insurance Plans?

An HMO is one of several insurance policy types customers can choose. Each type of coverage specifies how coverage works with in-network and out-of-network providers, whether you need a PCP and whether a specialist referral is necessary. We contrast HMOs with exclusive provider organizations (EPOs), point of service (POS) and preferred provider organizations (PPOs) below.

healthcare insurance costs and coverages by types in table graph






Primary Care Physician Required?





Referral Required for Specialists





Out-of-Network Coverage?





Network Size






Lowest cost

Lower cost

Higher cost

Highest cost


Members of HMOs and EPOs must use their provider network for medical services. The cost of out-of-network care must be borne by the patient (except for emergency treatments). Unlike an HMO, an EPO plan does not require members to elect a PCP, which also means that referrals from a PCP are not required before seeing a specialist. However, EPOs typically carry higher costs because they often feature broader networks.


Both HMOs and POS’ require users to get referrals before seeing a specialist. POS members are allowed to receive out of network but will typically pay a pre-negotiated but higher rate, whereas HMO members will have to bear the full cost out of pocket. Both HMO and POS plans generally waive the deductible if the policyholder designates a PCP within the network.


Unlike HMOs, PPO plans do not demand that members have a PCP. Additionally, PPOs permit members to receive care from out-of-network doctors and often exceed HMO networks in size. Due to this, PPOs are more expensive than HMOs. PPOs will also typically have a deductible.

Should I Choose an HMO Plan?

HMOs are ideal for those who prioritize cost savings and don't mind having a primary care physician (PCP) coordinate their care. However, if flexibility in choosing specialists or accessing care outside of a specific network is crucial, an HMO might not be the best fit. Read the pros and cons of an HMO plan to help you decide.



  • Typically cheaper than other health insurance types
  • Out-of-network care is generally not covered
  • Low or zero deductible
  • Referral is necessary for seeing a specialist
  • Primary care physicians can coordinate care
  • Preferred doctors and facilities may leave your network
  • Emphasis on preventative care


  • Typically cheaper than other health insurance types: HMOs will only cover healthcare obtained by specific doctors, other physicians and facilities the plan contracts with unless there is a medical emergency. HMO premiums are typically cheaper than PPOs, EPOs and POS to help offset this inconvenience.
  • Low or zero deductible: However, there will usually be a minimal copay for non-preventative visits.
  • Primary care physicians can coordinate care: Your PCP will also give you referrals to specialists.
  • Emphasis on preventative care: Patients are urged to have yearly check-ups and pursue early treatment.


  • Out-of-network care is generally not covered: Outside of medical emergencies, any care received out-of-network will likely be paid out-of-pocket.
  • Referral is necessary for seeing a specialist: You won’t have the option to see a specialist otherwise.
  • Preferred doctors and facilities may leave your network: Your preferred medical provider may choose to end their contract with your HMO network, requiring you to switch to another PCP within the network.

Praise and Criticisms of HMOs

HMOs were in practice in the United States as early as 1929 but it wasn’t until 1973, when the signing of the HMO Act of 1973 established the federally regulated HMO we know today.[2][3] Since then, HMOs have garnered both praise and criticism over the years.

Supporters argue that HMOs can reduce healthcare costs by promoting preventive care, negotiating with providers for better rates and streamlining administrative processes. Undoubtedly, HMOs can be seen as a boon for low-income families seeking healthcare coverage.

On the other hand, detractors claim that HMOs can restrict patient choice by limiting the network of providers and requiring referrals for specialist care. Additionally, concerns have been raised about the potential for HMOs to prioritize cost-saving over patient well-being, leading to decisions that might not be in the best interest of the patient's health.

How Do I Get HMO Insurance?

When seeking insurance, aim to gather three to five quotes from various healthcare providers. Premiums are set based on factors like location, age, tobacco use, plan choice and dependent inclusion. Navigating this for each company can be cumbersome. Luckily, platforms like SmartFinancial simplify it. Complete one form about your health history and income and get a tailored health insurance policy quickly. Start by entering your zip code for a FREE quote.

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What does HMO mean?

HMO stands for Health Maintenance Organization. It is a type of health insurance plan that requires members to select a PCP and get referrals from this doctor to see specialists within a network for covered care.

Can I switch from an HMO plan to PPO plan at any time?

Typically, you can switch from an HMO plan to a PPO plan during open enrollment. Outside of that period, special circumstances or qualifying life events, such as marriage or the birth of a child, might allow for a change.

Is HMO insurance and health insurance the same?

HMO insurance is a type of health insurance plan. Health insurance coverage is a broader term that encompasses various plans and coverage options, including HMOs, PPOs and others.

Are HMOs regulated?

HMOs are primarily regulated by states due to the McCarran-Ferguson Act of 1945, but federal laws like the HMO Act of 1973 can impose certain oversight.[4][3] The federal government also monitors HMOs through the Federal Insurance Office (FIO) and the Center for Consumer Information and Insurance Oversight.

What are the benefits of an HMO?

An HMO typically offers lower premiums and out-of-pocket costs in exchange for patients receiving care within a network of doctors and hospitals. Additionally, it emphasizes preventive care and coordinated services, potentially leading to better overall health outcomes and cost efficiency.


  1. Alignment Health Plan. “Out of Network Policy.” Accessed October 5, 2023.
  2. Britannica. “Ross-Loos Medical Group.” Accessed October 5, 2023.
  3. Social Security Administration. “Notes and Brief Reports,” Page 1 - 5. Accessed October 5, 2023.
  4. Office of the Law Revision Counsel. “Chapter 20 — Regulation of Insurance.” Accessed October 5, 2023.

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