In this blog we answer the question that is “how does HMO make money”, We will also discuss what an HMO means, the different types of HMOs, the coverage of HMOs, why are HMOs important in the first place, and most importantly how does an HMO make money. If you are interested in the topic then keep on reading down below.

How does HMO make money?

HMOs make money by paying medical professionals to deliver a variety of services to its members, in exchange for a monthly fee. Due to the pre-agreed payment structure, an HMO is able to provide cheaper premiums than other forms of health insurance plans while still providing access to high-quality treatment via its network of providers.

What is HMO(Health Maintenance Organization)?

When you join or employ an HMO (health maintenance organization), you are committing to a network of physicians or medical organizations to offer care at fixed (and frequently reduced) fees.

Despite the fact that HMOs are less expensive than other forms of health insurance, they restrict your options for medical treatment location and provider.

You may not be reimbursed for services rendered if you do not adhere to the HMO’s network of doctors, hospitals, and laboratories. Exceptions must be granted in the event of an emergency.

In addition, you’ll need the services of a primary care physician, who is the doctor you’d visit on a regular basis for checkups and other common procedures, such as blood tests. HMO members are often required to get a referral from a primary care physician before visiting a specialist or purchasing medical equipment.

Types of HMO(Health Maintenance Organizations)

As the name indicates, an HMO’s primary objective is to protect the health of its members and their families. Your health care provider would prefer that you pay a little amount up front to avoid disease rather than a large sum later to treat an illness, since this saves money in the long term. If you have a long-term medical condition, your health maintenance organization (HMO) will do everything necessary to keep you well.

There are three main types of HMO (Health Maintenance Organization)

Staff model

HMOs reimburse healthcare providers who serve exclusively HMO members, and the HMO pays the healthcare providers.

Group model

The HMO does not hire medical personnel directly, but rather contracts with them to provide treatment at a set fee. The group doctors will treat only patients who have enrolled in the HMO.

Network model

Health maintenance organizations (HMOs) do not employ healthcare practitioners directly; instead, they contract with a variety of medical groups. Physicians and nurses treat patients with HMO insurance as well as those with other insurance plans.

Coverage of HMO(Health Maintenance Organization)

If you have made an arrangement with your health insurance company in advance of obtaining treatment, an HMO will cover the expenses of your medical care. In the United States, managed care accounts for the vast majority of private health insurance coverage.

Depending on your area and the way through which you get health insurance, you may have a plethora of possibilities. The number of health insurance alternatives available via an employer might range from one to many. It is critical to grasp the distinctions between these alternatives. If you look for insurance on your own, your selections will vary depending on your location at the moment within the nation.

Other types of HMO(Health Maintenance Organization) 

Preferred provider organization (PPO)

In general, they are more expensive than Health Maintenance Organization but they provide a greater variety of alternatives. Because PPOs charge different rates for in-network and out-of-network healthcare providers and facilities, there is still some coverage if you go outside of your network while using a PPO policy. You do not need the services of a primary care physician in order to get therapy.

Exclusive provider organization (EPO)

An EPO is similar to an HMO in that it only covers treatment received inside the network. It is possible that referrals from a primary care physician may be required.

Point of service (POS)

As a combination of an HMO and a PPO, these plans provide the option of remaining in-network and having your treatment monitored by a primary care physician or opting to move outside of the network and paying a higher premium while still obtaining some coverage.

Why are HMO’s(Health Maintenance Organization) Important?

Monthly premiums for HMOs are often less costly than premiums for other types of health insurance. Apart from that, high-deductible health plans (HMOs) often have lower deductibles, copayments, and coinsurance, but this is not always the case.

Employer-sponsored health maintenance organizations (HMOs) often do not need deductibles and require just a modest copayment for some treatments, such as prescription medications and preventive care.

On the other hand, HMOs often have substantially higher deductibles and out-of-pocket payments in the individual health insurance market, which covered around 6% of the US population as of January 1, 2019.

Due to the proliferation of HMOs and EPOs in the individual market, PPOs are aiming to keep their pricing as low as possible. In certain areas, residents are confined to HMOs with deductibles in the hundreds of dollars as their only option. When comparing network types (HMO, PPO, EPO, or POS), individuals in most states have fewer alternatives than employees in the employer-sponsored market.

Why should people consider using in-network providers?

Each HMO maintains a list of physicians who are members of its provider network. Doctors, specialists, pharmacies, hospitals, laboratories, X-ray facilities, and speech therapists are just a few of the healthcare service providers included in this list.

When you have an HMO, you do not want to make the expensive error of seeking treatment from a provider who is not a network member. If you have your bloodwork done at the incorrect lab or fill a prescription at an out-of-network pharmacy and do not follow the regulations, you might face a cost in the hundreds or thousands of dollars.

It is your duty to verify if doctors and hospitals are included in the network of your health plan. Even though a laboratory is situated just across the hall from your physician’s office, this does not mean it is in-network. Make no inferences. For instance, since they are out-of-network physicians, an assistant surgeon or anesthesiologist may treat you without your knowledge or consent.

Before you begin working with your HMO, you should compile a lengthy list of questions to confirm that everyone engaged in your treatment is covered by your HMO.

Exceptions when it comes to In-Network Providers

There are a number of exceptions to the need to stay in-network, which are detailed below. This might take the form of the following scenarios: You’ve been engaged in a potentially fatal accident and need immediate medical attention.

·       “The HMO is unable to deliver the service you need.” To put it mildly, this is a strange situation. If this occurs, you should contact your HMO in advance to arrange for out-of-network specialist care.

·       If you are already receiving treatment from a specialist for a complicated medical condition, your HMO may refuse to cover the cost of the specialist’s services. The majority of HMOs make individual decisions about whether or not to continue treatment with your present physician.

·       You’ve left the service area and need emergency medical attention or dialysis therapy.

How do HMO’s(Health Maintenance Organization) make money

There are two ways Health Maintenance organizations make money and that is through Underwriting Income and Investment Income.

Underwriting Income

A health insurance company receives premiums from a large number of individuals and combines the cash to offer coverage. Insurance companies pay medical care claims from this pool when one of their consumers requires medical treatment. Additionally, health insurers use premiums to cover operational expenses. As required by the Affordable Care Act, health insurers must spend 80–85% of their income on claims and 20%–15% on administrative expenditures (ACA).

Investment Income

Investments are made using the money that insurance companies don’t have to spend on claims or other expenses because they have money to invest. The earnings generated by the company’s many assets (stocks, bonds, and real estate, for example) are used to support the company’s ongoing activities.

In conclusion we answered the question , “how does HMO make money”, HMOs make money by investment income and underwriting income. On the other hand, HMO engages with or hires a network of doctors or medical organizations to provide treatment at predetermined (and often discounted) rates. If you liked reading this article then leave your comments down below.

Frequently asked questions (FAQ): how does HMO makes money

How are HMOs paid or financed?

Health Maintenance Organizations (HMOs) differ from standard insurance companies in that they do not only offer medical care funding as an add-on service. HMO members are instead charged a monthly cost, regardless of how much medical care is required during a given month.

How do providers benefit from HMO?

Two benefits of this plan are that the monthly premiums are cheaper and that the out-of-pocket payments are lower. Those who take advantage of this service typically find that the cost of their drugs is decreased. The medical care you get is likely to be provided by an in-network provider, which reduces the frequency with which you will be required to submit claims.

Are HMOs good or bad?

Due to the fact that HMOs try to keep health care costs low, their premiums are often cheaper than those paid by regular insurers. In certain cases, health maintenance organizations (HMOs) are capable of delivering high-quality treatment to patients.

Why do doctors hate HMOs?

These are some of the same reasons why some physicians refuse to participate in HMOs. HMOs are notorious for underpaying for everything from office visits to regular medical testing, and many doctors report that HMO reimbursements barely cover their administrative expenses. Additionally, the HMO pre approval procedure presents difficulties.

Do doctors prefer HMO or PPO?

PPO plans may be a better option if you want more control over your healthcare and coverage choices. In most HMO plans, you are not required to have a primary care physician and are not obliged to get a referral for specialist treatment from your main care physician.

Who runs HMOs?

California’s Department of Managed Health Care (DMHC) is responsible for overseeing all HMOs and various other types of health plans. A health maintenance organization (HMO) offers members with access to one or more specialized networks of healthcare providers and facilities.

References

How HMOs Make Money – Managed Care Matters. (2006, December 22). Managed Care Matters. https://www.joepaduda.com/2006/12/22/how_hmos_make_m/.

How Do Health Insurance Companies Make Money?. (2017, June 1). HealthCareInsider.com. https://healthcareinsider.com/how-health-insurance-companies-make-money-60577.

What To Expect When You Join an HMO. (2021, September 22). Verywell Health. https://www.verywellhealth.com/what-is-an-hmo-how-does-it-work-1738661.

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