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Hassle-Free Health Coverage: How an HMO Works

Today's health maintenance organizations are a relatively recent service approach to providing prepaid doctor and hospital care. Their growth has been encouraged by rising health care costs -- and federal legislation.

An HMO is an entity that contracts with medical facilities, physicians, employers and sometimes individual patients to provide medical care to a group of individuals. This care is usually paid for by a company or other group at a fixed price per patient. Patients generally do not have any significant "out-of-pocket" expenses.

The principal objectives of HMOs are similar to the system of the Codex of Hammurabi, in that they aim to reduce medical expenses by:

- stressing preventive medicine -- physical exams and diagnostic procedures;

- reducing the number of unnecessary hospital admissions;

- reducing the average number of days per hospital visit;

- reducing duplication of benefits; and

- saving on administrative costs.

Federal employee benefit law passed during the 1970s requires employers who offer health care benefits to offer enrollment in an HMO as an alternative to an indemnity plan. Employers falling under this Act are those that:

- have 25 or more employees and are within the service area of a federally qualified HMO;

- are paying at least minimum wage; and offer a health plan to their employees.

HMOs are sometimes owned and controlled by commercial insurance companies, however, many are independently owned. Blue Cross and Blue Shield plans -- or their affiliates -- own and operate several dozen of the largest HMOs in the U.S. Other organizers of HMOs include governments, hospitals, employers, unions, consumer groups and local communities.

HMOs must operate within a specified geographical area known as the service area.

The service area must be approved by the state Department of Insurance and all members of the HMO must reside in the prescribed service area. The service area is usually a city, or a part of a city and occasionally an entire state. In the later 1990s, service areas began to play a diminished role.

HMOs must be state qualified (able to provide services within a a single state or states) or federally qualified (able to provide services in specified areas throughout the nation for national contracts like the United Auto Workers, Teamsters or government employees). If an HMO is federally qualified, it must also be state qualified in the states where it serves members obtained through a national contract.

HMOs provide service through one or more of three "models" of operation.

The Group Practice Model (GPM), also known as the Medical Group Model, is composed of a group of physicians of varying specializations practicing in one facility. It is similar to a clinic-type operation. Under the group practice model, your HMO contracts with a medical group to provide you with health care services.

If the medical group provides services to HMO members only it is called a closed panel medical group. Under a closed panel HMO, physicians are usually salaried employees of the HMO and work at a clinic owned by the HMO. If the medical group provides services to HMO members in addition to other, nonmember patients, it is called an open panel medical group. Under an open panel, doctors are not salaried and treat HMO subscribers in their own offices. Generally, you would not need to go farther than the medical group for the health care, unless of course hospitalization is needed.

The medical group refers you internally, within the medical group, to physicians of differing specializations as needed (i.e. pediatrician, surgeon etc.). Special arrangements can be made if a specialist of a particular type of medicine is needed and not a part of the medical group. Your HMO also contracts with hospitals in the area to provide you with services that are not available through the medical group, or if you require surgery, etc.

The Staff Model health care delivery system is actually owned, operated, staffed etc., by your HMO. The HMO controls the physician group, and the physicians and other health care professionals are employees of the HMO. The HMO could also build a medical group facility and hire physicians to staff it and provide health care services to members.

The key element of a Staff Model is that the HMO's own employees and facilities are being used to provide health care services to the HMO's members.

An Independent Practice Association Model (IPA) is a network of individual physicians who contract with your HMO to provide you with health care services. Unlike the Group Practice Model, an IPA's physicians are located throughout a geographic area and operate independently of each other.

If you select an IPA, you would receive a list of physicians of varying specializations to choose from. Initially, you would choose your own primary care physician (usually a general practitioner, or if for a child oftentimes a pediatrician) and visit this physician for treatment.

However, if your primary care physician cannot render treatment, then he or she will refer you to the appropriate specialist within the IPA network. Like the Group Practice Model, the physicians of an IPA may utilize hospitals affiliated (that is, contracted) with your HMO to render services not available at their independent practices.

Physicians who are part of an IPA treat patients on an open panel (HMO members and nonmembers) or closed panel (HMO members only) basis, depending on their contract with the HMO.

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