HMO Plan: What It Is & How It Works

What's an HMO, and is it better than a PPO? We've got the answers to your most pressing questions about HMO health plans.

FirstQuote Health Staff
Published on
February 8, 2023
Last Updated on
October 6, 2023
HMO Plan: What It Is & How It Works

An HMO plan is a popular health insurance option that offers comprehensive coverage for medical services. This type of plan is an attractive choice for many people, as it provides low premiums and deductibles, but there are some details to understand before signing up for one. Learning about how HMO plans work and comparing them to other plans will help you make the best decision for your individual needs.

It's important to know the differences between HMO plans and other insurance options, such as PPOs, so you can make an informed decision about the best health insurance plan for your needs. HMO plans usually require a primary care physician referral before seeing a specialist, and typically offer lower premiums than PPO plans. On the other hand, PPOs may allow more flexibility in choosing healthcare providers with fewer restrictions on referrals from specialists. Understanding these distinctions will help you decide which plan is right for you.

What Is an HMO Plan?

An HMO plan gives members access to a network of providers that have agreed to accept the insurer's predetermined rates. The trade off is that members are restricted to getting care only from those within the network, but they can typically benefit from lower costs than if they had taken out a PPO plan. In addition, many HMO plans offer additional benefits such as preventive care and wellness programs at no extra cost.

What Does An HMO Plan Cover?

An HMO plan covers a wide range of medical services, including doctor's visits, prescription drugs, lab tests, emergency room visits, and more. The level of coverage depends on the specific plan you choose. Generally speaking, it is highly likely that an HMO plan will meet the minimum essential coverage requirements outlined by the Affordable Care Act (ACA). If you are unsure if your HMO plan meets these requirements it is best to contact your insurer or a certified healthcare professional to clarify.

HMO plans cover the essential benefits required by the Affordable Care Act (ACA). These benefits include preventive and wellness services, chronic disease management, maternity care, prescription drugs, pediatric care, mental health and substance abuse services, and hospitalization. Depending on the plan you choose, some HMO plans may also offer additional benefits such as vision coverage.


Knowing the difference between HMO and PPO plans can be crucial when selecting an insurance plan. By understanding how these two types of plans differ in terms of network size, cost, out-of-network coverage, and primary care physicians, you can make an informed decision about which would offer the best coverage for your needs. Learning more about the finer details of each type of plan can help you save money and make sure you have access to the doctors or hospitals that are important to you.

| HMO | PPO ||---------------------------------------------------------------------|---------------------------------------------------------------------------------------|| Primary Care Physicians are mandatory | Primary Care Physicians are optional || Healthcare network is smaller and must be used for in-network care | Healthcare network is typically larger, but out-of-network care may also be necessary || Out-of-Network coverage is usually not covered or partially covered | Out-of-Network coverage is usually covered at a higher cost || Lower monthly cost but with less choice of doctors and hospitals | Higher monthly cost but with more choices for doctors and hospitals |

Primary Care Physicians

One of the main differences between HMO and PPO plans is in terms of primary care physicians. Under an HMO plan, you must choose a primary care physician from the health insurance network and your doctor will be responsible for referring you to specialists within the network. On the other hand, under a PPO plan, it is not mandatory to select a primary care physician and you may be able to visit specialists without needing a referral from your doctor.

When selecting a primary care physician under an HMO plan, you should consider factors such as proximity to your home or workplace, office hours, and the doctor's credentials. You may also want to research the other doctors in their practice to make sure they have the qualifications and experience you are looking for. Once you have selected a primary care physician, you should get in contact with them beforehand to discuss any questions or concerns that you may have regarding your insurance coverage.

Network Size

Another key difference between HMO and PPO plans is the size of the network. The network of an HMO plan is typically smaller than that of a PPO plan, as the provider may only cover a limited number of hospitals and doctors in their vicinity. On the other hand, PPO plans often have larger networks, with access to many different providers throughout a wider area. This can be beneficial for consumers who want to choose from a larger selection of healthcare providers or who need to travel for their medical needs.

Consumers who choose a larger selection of healthcare providers with a PPO plan may benefit from having access to more specialists, as well as wider geographical coverage in case they need to be treated in another area. Additionally, PPO plans often have lower out-of-pocket costs compared to HMO plans, making them an attractive option for those who are looking to save money on medical expenses.

Out-of-network Coverage

An additional difference between HMO and PPO plans is how they handle out-of-network coverage. HMOs generally don’t cover any care that is received from outside of the plan’s network, meaning consumers may have to pay for the entire cost of care if treatment is received out-of-network. On the other hand, PPOs typically offer some form of coverage for care received outside their network, albeit at a higher rate than in-network treatment. This can be beneficial for those who require specialized medical attention or treatments that may not available within the plan’s network.

Consumers may find out-of-network coverage to be beneficial when seeking specialized or advanced treatments that are not available within their network. Out-of-network coverage may also be valuable in the event of an emergency, as consumers will likely have access to care even if it is outside their plan's network. Additionally, those who frequently travel or move around may appreciate the flexibility of being able to receive care from more than just one location. Out-of-network coverage can provide peace of mind that they’ll have access to quality healthcare wherever life takes them.


Generally speaking, HMO plans tend to be the most cost-effective choice for consumers. Since HMOs typically allow members to access a limited network of healthcare providers, they are able to keep their administrative costs low and pass those savings on to their customers. Additionally, because members have fewer options when it comes to accessing care out of network, they often pay fewer out-of-pocket costs for treatments as compared to a PPO plan. As such, HMO plans are often beneficial for individuals who don’t require specialized care outside of their plan’s coverage area.

How Does An HMO Plan Work?

An HMO plan is designed to provide comprehensive coverage for a wide variety of medical services at an affordable cost. The way an HMO works is that members pay a monthly premium in exchange for access to the network of providers. The providers are then paid directly by the insurer or the health plan and there are usually no out-of-pocket costs for care received. Members must choose a primary care physician who will coordinate all their care, refer them to other specialists, and handle any paperwork related to treatment.

HMO plans have more restrictions than PPO plans, based on three factors:

  • Constraints on how you seek care
  • Limited networks of healthcare providers
  • No coverage for out-of-network care

Constraints On How You Seek Care

 In general, HMO insurance plans emphasize affordable routine and preventive care. Because every HMO member must visit their PCP before getting a referral for any additional medical care or services, your PCP is considered the “gatekeeper” of your health. Your primary doctor will treat you for general illnesses, prescribe medications, and decide if you should seek care from a specialist.

If you are relatively healthy, and only plan to see a doctor for basic check-ups, you probably won't mind seeing your PCP for the majority of your medical needs. However, if you plan to seek care for certain medical conditions, you might not like having to go through your PCP first.

Say you've noticed a strange mole on your skin. Before you can even make an appointment to see a dermatologist, you have to schedule a consultation with your PCP, and then get a referral to receive specialized care.

Limited Networks Of Healthcare Providers

HMO networks generally include a smaller pool of healthcare providers than PPO networks. If you don't mind having your PCP direct your care, your PCP will refer you to a specific specialist or pharmacy within your HMO network - no extra research required. But if you prefer to direct your own care, you might dislike having to visit a specialist or facility that your PCP chooses for you.

An HMO's smaller network also means you might have more limited access to healthcare providers in your area. If you have a doctor you want to keep, make sure they are included in any HMO plan you're considering.

No Coverage For Out-Of-Network Care

An HMO will not cover services and care you receive from healthcare providers outside its network, or without prior approval from your PCP or medical group. There are some exceptions to this rule:

  • You have designated an OB-GYN as your PCP. Women can also visit an OB/GYN for well-woman visits and maternity care, without a referral. 
  • You need a service that is "medically necessary" but isn't available from doctors in your HMO network. In that case, you might receive authorization to seek out-of-network care.
  • You go to an emergency room outside your network. While out-of-network ER visits are covered, your HMO plan might have certain procedures to follow after your medical emergency. For example, you might have a specific timeframe in which you have to notify your insurance provider of an out-of-network ER visit. Or an out-of-network hospital might ask you for an upfront payment. Once you've paid the bill, you would need to file a claim and wait for reimbursement from your HMO. 
HMO Pros and Cons

How Much Does An HMO Cost?

Because of its limitations on network size and how you can seek care, an HMO is typically the cheapest type of insurance plan. You pay no deductible, and typical procedures are fully covered after you make a small copayment. So instead of worrying about meeting a deductible before your insurance pays anything toward your medical costs, you'll just have a small copayment to see a doctor or fill a prescription. An HMO's restrictions minimize your out-of-pockets, and encourage you to seek care before health issues lead to more costly medical treatment and services.

As with PPO insurance plans, the specific amount you pay for health insurance costs depends on the insurance provider you choose, and the specific HMO insurance plan you select. For example, a single insurance provider might offer more than one HMO plan. Each plan can differ in network size, coverage for prescription drugs and medical services, and coverage costs (like premiums, copayment’s, and deductibles). So a cheaper HMO plan from that insurer could have a smaller provider network or less generous coverage.

The simplest way to lower your healthcare costs in an HMO health plan is to seek care from doctors and facilities in your plan's network, and with prior approval from your PCP or medical group. A PPO will cover about 70% of the cost of out-of-network services. An HMO, on the other hand, will typically require you to pay full price for out-of-network services.

Are HMOs Popular?

Yes! HMOs are popular plans because they offer manageable care at an affordable rate. When you compare types of insurance plans, you're looking at a trade-off between cost and flexibility. An HMO generally costs less than other plans because you have no coverage for out-of-network care, and you have more limitations on how you seek care from in-network providers. If you like the doctors within an HMO's network, and you don't require much specialized care, your healthcare coverage will be simple and affordable.

How To Make The Most Of An HMO

Because your PCP acts as your healthcare advocate in an HMO plan, it is crucial that you find a PCP you like, and who you feel understands your health needs. Here are some factors to consider about your PCP, so that you get the most value from your HMO plan:

  • Once you've signed up for an HMO, choose a PCP from your plan's list of in-network doctors, and schedule an appointment as soon as possible. That way you'll be familiar with your PCP in case you get sick or need a referral.
  • If you have a family, each family member can choose a different PCP and/or medical group. 
  • Covered dependents have to receive care from your HMO's service area. So if you have children living or traveling away from home, they'll have to make a trip home to see their PCP.
  • If you want to change your PCP or medical group, you can typically do so at anytime by notifying your HMO's insurance provider. Usually, if you make a change before the 15th of the month, you'll be able to see a new doctor on the first of the following month. 

Who Is HMO Plan For?

An HMO plan may be right for you if:

  • You are in good health and don’t anticipate needing specialized care outside of your network
  • You want to keep your costs low while still having access to quality healthcare coverage
  • You prefer to work with a primary care physician who is part of an HMO's network of providers
  • You are willing to obtain referrals from your primary care physician before accessing specialty services

As you do your research, you'll probably come up with specific questions about HMO plans and your health needs. Don't be afraid to ask for help! First Quote Health will direct you to licensed agents who can sort out your concerns, and help you find the best possible healthcare coverage.

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