Health Maintenance (HMOs)

Health Maintenance Organizations (HMOs) have a different way of saving money. Doctors are paid a fixed amount per month (capitation). This means they get the same amount of money whether you are healthy or sick. This gives the doctors less incentive to do unnecessary surgeries, lab work, etc. Studies have shown that billions are spent annually on unnecessary tests, surgeries, and hospitalization. An HMO definitely cuts down on the financial incentives to do unnecessary surgery or over treat patients.

With HMOs you usually name one doctor, or group of doctors, to be your primary care doctor. In order to go to a specialist you must be referred by your primary doctor. This referral system saves money because unnecessary (and costly) visits to specialists can be avoided. HMOs also have the advantage of discounting doctor and hospital fees. Most HMOs have deep discounts negotiated with hospitals. In order to get the referrals from the HMOs, the hospitals have to cut their fees. This, in turn, saves the insured money in premium savings.

While HMOs can, and do, save you money, there are some potential disadvantages. In an HMO, you must select a primary care doctor from a limited list. Consequently, if you do not like the listed doctors, an HMO may not work for you. Also, many HMOs compensate primary care doctors in a way that will reduce their compensation if they send you to a specialist. This may cause a primary care doctor to attempt procedures that should be done by a specialist. It is important to understand this compensation method clearly before selecting an HMO medical insurance plan.