My Coverage Explained

Today’s HMO: Not Your Grandfather’s (or Your Father’s) HMO (part 2)

How HMO Works: Not Your Grandfather’s (or Your Father’s) HMO Part II

To know where HMOs came from, and it’s also important to know how they work. Here’s a then-and-now look at the HMO your Grandfather knew and the ones you may buy today.

How HMO Works: Then and Now
In the Beginning: Health maintenance organizations, or HMOs, evolved from “pre-paid” plans companies bought for their workers, and only covered hospital stays  and care for acute illnesses and injuries. Back then, plans were more like what we call “catastrophic” plans today.

The plans only covered care that was provided by certain doctors and hospitals. If a person went to another doctor or hospital, they paid for their care themselves or were treated at charity hospitals. Your grandfather may also remember when doctors would let people pay them a little at a time (and some even took food or farm animals as payment.)

Now: Today’s HMO is still built on the model of care provided by a network of doctors and hospitals. But in addition to defining where people get care, and who pays for it, HMO now also focuses on lowering costs by looking at when people get what care, and who makes the decisions. At its core is the idea that offering preventive care —many times free or with a low copay -- can keep members from having more serious health problems down the road. It is this idea of “maintaining” health through prevention and care management  that gave the HMO its name.

Buying HMO: Then and Now
In the 1970s: The HMO was started by providers. They were able to convince employers that they could have a healthier workforce by buying them coverage at a set price.  Most HMOs were locally based, meaning members used doctors and went to hospitals close to home. It wasn’t until the late 1970s, when insurance companies began partnering with provider HMOs or offering their own HMOs, that HMOS began offering larger provider networks and expanded areas of coverage.

Now: Most HMOs today are offered by insurance companies such as Blue Cross and Blue Shield of Illinois. They may offer a variety of HMOs, including a lower cost option that covers providers in a certain market area, such as one just for the greater Chicago area. A larger HMO may cover certain providers across the state, and may even offer “away from home” benefits for people who travel or who have kids in college in another area or state.

All HMOs continue to only cover, or pay, for care when using providers in the HMO’s provider “network.” You may be able to buy an HMO plan that only covers doctors and hospitals in a certain health system. You can still buy an HMO plan that only covers providers near where you live and work. And many employers, particularly those with multiple locations across the state or country, will still offer a broader HMO.

There are some HMO plans you can buy that offer some coverage when you see providers not in the HMO’s provider network. The out-of-network benefits would be limited and cost more, but can give you added peace of mind knowing you have more choices when you need care.

1Lone Star Legacy: The Birth of Group Hospitalization and The Story of Blue Cross and Blue Shield of Texas; Samuel Schaal, copyright 1999.

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