Definition
A health maintenance organization, or HMO, is an agreement structured for the supply of medical services to participants at a fixed cost, usually referred to as a co-payment. To the consumer, a Health Maintenance Organization has the look and feel of prepaid medical insurance.
Explanation
HMOs offer a wide range of services to participants, which usually extend well beyond medical care into areas that are considered preventative care or wellness programs. HMOs are considered "managed" care programs.
With a health maintenance organization, the employee chooses a primary care physician that is responsible for providing medical care, preventative programs, and specialist referrals. Since care and referrals occur within the HMO's network, there is very little paperwork for the patient to fill out.
If a member of a health maintenance organization seeks medical assistance from providers without a referral, or goes out of the network of physicians and hospitals, it is very likely that some, or all, of those expenses will be paid out-of-pocket.
Since the HMO offers less out-of-network flexibility relative to a preferred provider organization (PPO) or a point of service (POS) medical plan, the premiums are relatively low. The network structure allows the organization to aggressively manage costs and pass those savings on to participants, employers and employees.