What is a Medicare Advantage HMO Plan?

A Health Maintenance Organization (HMO) plan is the most common type of Medicare Advantage plan. Read more about the key features of an HMO.
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Introduction

There are two main types of Medicare Advantage plans – HMO and PPO plans.  Medicare Advantage HMO plans make up around 62 percent of available Medicare Advantage (Part C) plans offered in 2021.  HMOs are a popular option for Medicare beneficiaries enrolled in Medicare Advantage plans.  They often offer lower- to zero- premiums and lower out-of-pocket costs for using a ‘network’ of providers.

This article discusses the HMO plan’s basic features, pros and cons, and how it differs from other Medicare Advantage plan types such as Preferred Provider Organizations (PPO).

What is a Medicare Advantage HMO plan?

An HMO (Health Maintenance Organization) plan, is a type of ‘managed care plan’ as your medical care is handled by a healthcare provider network specific to that plan.

With managed care plans, the insurance company negotiates discounts and rates with certain doctors and physicians to form a network to provide care for members at reduced costs.  These providers also have to deliver a minimum level of quality. Besides agreeing to certain prices, providers are typically required to help reduce healthcare costs by focusing on preventive care.

What are the features of an HMO plan?

Medicare Advantage HMO plans have the following features:

  • Local network of healthcare providers/hospitals:  When you enroll in an HMO plan you agree to obtain your care through the plan’s network to access lower-cost care.  Except for emergency care, your plan will not cover costs for care received at an out-of-network provider.
  • Primary Care Physician (PCP): You are required to choose a primary care physician (PCP) who will have primary responsibility for managing your health care and including coordinating with in-network specialists.  Since these medical professionals are under the same network, it is often easier for them to coordinate care because they can access your medical history.
  • Lower cost compared to a Medicare Advantage PPO and Medicare Supplement:  Most HMO plans will have low- to zero-premiums so will often cost less upfront than a Medicare Supplement plan or PPO plan (note that you will still have to pay your standard Part B premium regardless of HMO, PPO or Medicare Supplement).  You will also pay lower rates for in-network doctor visits and services in the form of copays or coinsurance.
  • Referrals to specialists within the network: your designated PCP is responsible for determining whether specialist care is required.  You will need a referral from your PCP before you can see a specialist within the HMO’s network.
  • Coverage in case of emergencies and urgent situations: Emergencies are always covered, even if the doctors or hospitals are outside your Medicare Advantage HMO’s network.

Also, similar to other Medicare Advantage plans you will get the following benefits:

  • Capped limits for your annual out-of-pocket expenses: The maximum cap on out-of-pocket costs allowable is $7,550 in 2021.  The federal government defines this limit and your plan’s maximum out-of-pocket cap may be lower than this.
  • Prescription drug coverage: Many Medicare Advantage HMO plans include prescription drug coverage. This is different from Original Medicare, where you must purchase a standalone Part D Prescription Drug Plan (PDP) to have prescription drugs covered.
  • Extra benefits: many plans will include extra benefits such as dental, vision, and hearing coverage as well as other benefits such as gym memberships or coverage over-the-counter (OTC) benefits

These benefits vary depending on the Medicare Advantage HMO plan.

How is it different from a PPO?

Although both HMO and PPO plans are under a managed care plan, there are key differences.

Unlike the Medicare Advantage HMO plan, a Preferred Provider Organization (PPO) plan typically does not require you to have an assigned primary care physician.  There is no need for referrals before you are allowed to visit a specialist. Besides that, you are free to visit out-of-network providers.  However, out-of-network doctors will cost you more.

The find out more about the differences read this article on HMO vs. PPO plans.

Should I pick an HMO plan?

Whether you are suitable for being in an HMO plan will depend on your personal situation.  Many beneficiaries choose HMOs for their lower cost and coordinated care that you receive as part of an HMO.

If you do not have a specific need for a broad network of doctors and don’t travel often, a Medicare Advantage HMO could be a great choice for cost-effective healthcare coverage.  Furthermore, HMOs are focused on helping to lower healthcare costs through preventative care, and over the long-term, you may save costs as a result of early preventative treatment of conditions that could later cost you more.

The maximum out-of-pocket caps of HMO plans ensure that even in a catastrophic scenario, your plan will cover 100% of the costs if you exceed this limit.

Final Words

Medicare Advantage HMOs are a type of Medicare Advantage plan characterized by a defined network of healthcare providers.  While there are no out-of-network benefits (except in an emergency) you often benefit from more coordinated care and lower costs.  If you’re budget-conscious, Medicare Advantage HMO plans can be a great choice and tend to be less expensive than both PPO plans and Medicare Supplement (Medigap) plans.

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