FAQS: Are HMOs Good or Bad?
Are HMOs good or bad for their members?
It depends. HMOs were designed to hold down the cost of health care, and so they tend to charge lower premiums than traditional insurers. Some HMOs can provide excellent care. But there are also many examples where HMOs have not provided the care that their members required.
Key difference between HMOs, PPO plans and traditional health insurance
One key difference between HMOs and traditional insurance is the direction in which the incentive structure points. In the simplest terms, insurance tends to create incentives for providers to provide treatment, because payments are based on the service rendered to the patient — the more services rendered, the higher the bill and the higher the payment. The downside of this incentive structure is that patients may be overtreated, which causes costs to rise and which can harm the patient.
By contrast, the incentive structure for HMOs creates incentives to withhold care. The medical group or doctor working with an HMO is paid a fixed amount each month, whether or not care is provided. Therefore the most profitable situation for the HMO is when no care is provided. When a member requires care, the group must use some of the money it has already been paid to provide that care. In many cases, the HMO structure forces the doctor to decide what care to provide to the patient when the doctor or the doctor’s group will have to pay for the care.
Another difficulty that HMO members may experience is that the providers with whom the HMO has entered into contracts may not be the most qualified providers. But part of the HMO “bargain” is that, with some exceptions, the HMO member must receive care from the providers that the HMO has contracted with. This lack of choice can mean that the patient is asked to accept whatever level of care is provided by the HMO, even if far better care is available out of network from doctors or facilities who specialize in treating the member’s condition, or who use new techniques or equipment that produce demonstrably better outcomes.
More HMO FAQs
- What is an HMO / What is a health care service plan?
- Can I sue my HMO / health care service for bad faith?
- How do HMOs compare to “traditional” health insurance?
- Why do HMOs have such a bad reputation?
- Do I have to see the HMO’s doctor?
- What is ERISA? Can I sue my HMO for Punitive Damages?