HMO FAQS: MHO vs PPO – How HMOs Operate and Make Money

Industry standards require that requests for referrals be acted on within certain time limits, depending on the urgency of the need for care, but HMOs and medical groups often do not meet the deadlines.

How do HMOs compare to PPO and “traditional” health insurance?

The key difference between an HMO and an insurer is that HMOs provide the promised coverage to the member (either directly or indirectly) while traditional insurance simply pays for care that the policyholder has obtained, after the care was rendered.

In today’s world, the differences between HMOs and regular insurance can be blurry, because insurers may have restrictive practices or policy terms, or may offer financial incentives to use providers who have agreed in advance to provide care for a discounted fee.

Traditional insurance usually allowed a policyholder to obtain treatment from any medical provider. The insurer would then agree to pay a certain amount, and if that was not enough to cover the provider’s fee, the policyholder would be responsible for paying the balance. In order to cut costs, insurers began to enter into contracts with providers in advance, in which the providers agreed to accept a discounted fee in exchange for being listed in the plan’s provider network. Some plans encourage their policyholders to seek care from these “preferred providers” by paying less for care given by non-preferred providers. Some plans simply provide that there is no coverage for care outside of the plan’s network. This type of plan in some ways resembles an HMO.

HMOs ( health care service plans) usually require a referral to see a specialist

Another difference between HMOs and insurance is that with HMOs a member cannot usually “self refer” to a specialist. So, if a member wakes up one morning unable to bend her elbow, she cannot make an appointment directly with an orthopedic surgeon. Rather, she must first be seen by her primary-care physician or “PCP.” If the PCP determines that the member should be seen by a specialist, the PCP will give her a “referral.” Without the referral, the plan will not pay for treatment by a specialist. Some plans require a new referral from the PCP every time care by a specialist is sought.

PCP’s are sometimes able to write the referral on the spot; but in other cases, they have to request permission from the medical group for the referral. This means that the member will have to wait until the group considers the referral before scheduling an appointment with a specialist.

Industry standards require that requests for referrals be acted on within certain time limits, depending on the urgency of the need for care. But HMOs and medical groups often do not meet the deadlines.


More HMO FAQs

How we help consumers and insurance policyholders

While much of our practice involves work we do for other lawyers, we also handle cases for people and businesses involved in disputes with their insurance companies. If you, your business, or a member of your family is involved in an insurance-related dispute, we might be able to help.

Our analysis of insurance issues is so well respected that we are sometimes consulted by insurance companies themselves. We were recently asked by a major insurer to advise it on whether to make a $17 million claim to its own insurance company.

We do not handle litigation on a high-volume, assembly-line basis, and we are therefore very selective about the cases we take. But when we do take a case, we devote considerable thought, care, and attention to it, so that it moves as quickly through the courts as the judicial system permits.

To find out more about what we can do for you read “Our Litigation Practice for Policyholders.”


For Consumers and Policyholders


Southern California civil appeals attorney, Jeffrey I. Ehrlich, is an appellate specialist certified by the State Bar of California’s Committee on Legal Specialization.