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Part I: Terminology
 > Features of HMOs

Specific Features of Health Maintenance Organizations

A cost management feature of the HMO is procurement of approved contracted member providers, including physicians, specialists, hospitals, clinics and laboratories. HMOs are financed by fixed periodic payments determined in advance by contractual agreement between the insurance company (the HMO) and the employer contracting to buy services for their employees.

An "HMO" also may be referred to as a "pre-paid health plan," as the HMO combines two functions:
  • It provides health coverage to its enrolled members and,
  • It provides them comprehensive health care services through pre-approved network of physicians and healthcare service entities.

The HMO concept is different than the traditional private "fee-for-service" model, in which providers charge a fee for each service or procedure provided to the patient. The HMO identifies one fixed fee per service required. Enrollees must utilize the pre-approved provider so members receive payment for healthcare services from the HMO. One of the universal concerns voiced by members within HMOs is their loss of freedom to choose their healthcare providers and services. In an effort to control costs, HMO organizations must confine access to those providers who agree to accept the precontracted fees for services.

Health Maintenance Organizations may be publicly owned for-profit organizations or nonprofit, private, independent companies. Some are affiliates of large insurance or managed care companies. Some are small regional organizations. The degree of control exerted, the service area the HMO covers, financial stability, and profit status, either for profit or nonprofit is important to know when selecting a plan to determine the HMOs stability in the market and know their service area.

HMOs are regulated by both the federal government and by most states through the
Department of Health or Department of Insurance. Regulations emphasize access to care, patient protection and financial status (i.e., stability and profit or non-profit status of the HMO).