Health Maintenance Organizations

(February 2007)

Health maintenance organizations (HMOs) are managed care plans that provide health care services to their members through networks of doctors, hospitals, and other health care providers. HMOs are popular alternatives to traditional health care plans offered by insurance companies because they can cover a wide variety of services, usually at a lower cost.

This publication explains how HMOs work and can help you decide whether an HMO is right for you and your family and whether it will meet your overall health care needs.

How HMOs Work

HMOs use “networks” of doctors, hospitals, clinics, and other health care providers that together provide comprehensive health services to the HMO’s members. An HMO usually requires members to seek routine care from providers in its network. In exchange for a built-in clientele, health care providers participating in an HMO’s network agree to treat the HMO’s members at a contracted rate.

When you join an HMO, you must select a “primary care physician” from a list of doctors in the HMO’s network. Your primary care physician becomes your point-of-contact for nearly all of your health care needs. With very few exceptions, your primary care physician will oversee all of your medical care and provide referrals to specialists and other providers. This allows an HMO to control costs.

In general, the trade-off with an HMO is reduced choice of providers in exchange for increased overall affordability.  While your monthly premiums may be higher in an HMO than in other health care plans, coinsurance amounts and deductibles are usually lower. 

Most often, HMOs provide coverage through employer-sponsored group health plans, although some offer memberships to individuals and their families. Employers and groups negotiate contracts with HMOs to establish the cost and benefits of their plans. The contract is between the employer or group and the HMO, and not the employee or group member and the HMO. Therefore, people who work for different employers or belong to different groups can have different benefits, even though they’re members of the same HMO.

In an HMO, you will pay:

• Premiums – the amount you pay for coverage. If you belong to an HMO through an employer-sponsored health plan, your premiums will probably be deducted each month from your paycheck. Some employers may pay all or some of the premium costs for you.
  
• Copayments – amounts you pay each time you receive a covered medical service or benefit, such as a doctor visit or a prescription drug. Copayments may vary depending on the services rendered but are usually more expensive for emergency or specialized care.
• Deductibles – the amount you must pay out of pocket before the HMO will pay for covered health services. Under a state-mandated HMO plan, an HMO may charge a deductible only for services performed out of the HMO’s service area or for services performed by a physician or provider who is not in the HMO’s network. Most HMOs do not have deductibles.
• Maximum out-of-pocket expenses – the maximum amount you have to pay out of pocket for covered services and benefits during a certain period of time.

HMOs cover 100 percent of the cost of all covered services received from network providers in excess of the copayment. For example, if your HMO requires a $20 copayment for an office visit and the contracted rate for the doctor is $80, you would pay the $20 copayment, and the HMO would then pay the remaining $60.

Contracted network physicians or providers are prohibited from billing patients for covered services if the HMO fails to pay. A contracted network provider or physician may only bill you for deductibles, copayments, or coinsurance amounts that are due.

HMOs only cover services they deem “medically necessary.” They usually don’t cover health care services you receive outside the network, except in the following situations:

• You have a medical emergency and seek treatment in an emergency facility. Make sure you understand how your HMO defines a medical emergency and whether there are any special procedures you must follow.
  
• You need a covered medically necessary service that’s not available from providers within your HMO’s network.
• You have a point-of-service option. This is a special provision that allows you to go to non-network providers if you’re willing to pay a greater share of the cost.

Otherwise, if you receive out-of-network services, you will likely have to pay all of the costs yourself.

HMO members usually do not have to file claims or wait for reimbursements. There may be times, however, when you have to pay for services at the time they are received. For example, you may have to pay for emergency care up front if an out-of-network provider requires it. You would then need to submit a claim to your HMO to receive reimbursement.

HMOs provide service within specific geographic areas, which may include all or a portion of a particular county. To be a member of an HMO, you must live or work in its service area. To learn whether an HMO is available in your area, call the Texas Department of Insurance (TDI) Consumer Help Line or visit our website and use the “Insurer Search” feature.

1-800-252-3439
463-6515 in Austin

The health care providers in an HMO’s network are located in the HMO’s service area. If you travel often or are away from home for long periods at a time, an HMO may not be right for you because of the requirement to use network providers for most of your health care. This requirement does not apply to children for whom you are required to provide court-ordered medical child support. If your dependent is a student who lives outside the service area to attend school, he or she will have to travel to the service area to receive routine care. However, a covered student can receive emergency care outside the service area.

Some HMOs offer a point-of-service (POS) option that allows for greater choice of providers.  With a POS option, you can use out-of-network providers if you wish, but you’ll have to pay a higher share of the cost than you would for using a provider in your HMO’s network.

Not all HMOs are required to offer a POS option. If your HMO is through an employer of more than 50 full-time workers, however, state law requires the plan to offer it.

One of the first things you’ll do when you join an HMO is choose a primary care physician. Your primary care physician is a doctor within the HMOs network who coordinates and supervises all of your nonemergency health care. Primary care physicians are sometimes called “gatekeeper doctors.” Your HMO will have a list of primary care physicians for you to choose from.

You will go to your primary care physician for any routine care and checkups. Generally, an HMO will not cover care you receive without a referral from your primary care physician. The exceptions include emergency care, and, for women, obstetrician/gynecologist visits, including one well-woman exam each year and any care related to pregnancy.

You can change your primary care physician to another in-network doctor. However, an HMO may limit how often you switch to no more than four times per year.

If you require only routine care, a doctor’s assistant or advance-practice nurse may provide services to you instead of your primary care physician. This is another way HMOs control costs. Even though the assistant treats you, you still pay the regular copayment. You have the right to see your primary care physician in person if you choose.

It’s a good idea to talk to the doctors you’re considering as your primary care physician before making a decision. Also, talk to family members and friends who’ve used the doctor and ask if they were satisfied. Ask about the doctor’s style of care, office hours, how quickly his or her office schedules appointments, and any other questions that might help you decide.

Many HMOs use “drug formularies” as another way to control costs. Formularies are lists of medications that HMOs authorize providers in their networks to prescribe.

Formularies are not subject to regulation by TDI or the Texas Department of State Health Services. If an HMO doesn’t cover a specific drug, it usually requires doctors to prescribe a similar drug.

Except in the case of plans sponsored by small employers (businesses with two to 50 eligible employees), an HMO that covers prescription drugs must always cover any prescription drug – whether or not it is on the formulary – that your doctor prescribes for a chronic, disabling, or life-threatening illness, provided that

• the illness is covered by the plan
  
• the HMO offers at least some form of prescription drug benefit
• the drug is approved by the Federal Drug Administration and recognized in a prescription drug reference book
• the drug has been approved in peer-reviewed literature for treatment of the patient’s illness.

If an HMO drops a drug that you’re already taking from its formulary, it must continue to cover the drug until your plan’s next renewal date. This requirement does not prevent a physician from prescribing a different but medically appropriate drug that is on the plan’s formulary.

Any HMO group plan that includes a prescription drug benefit must tell you whether or not it uses a formulary, and if so, explain how it works and which drugs are on the list. You may also contact the plan to determine if a specific drug is on the formulary. The HMO must tell you whether a specific drug is on its formulary within three business days of your request.

The process HMOs use to determine whether treatment is medically necessary is called “utilization review.” These reviews are made on a case-by-case basis and generally must be conducted before any health services are provided, except for basic, routine care. A utilization review may also be required for drug prescriptions.

An HMO will almost always deny coverage for any treatment not determined to be medically necessary. However, the law requires HMOs to have certain “quality oversight” provisions in place to ensure a physician’s “best medical judgment” is the deciding factor in any utilization review. The best-judgment rule also extends to the prescription of drugs that are not otherwise covered by the HMO.

Some HMOs use “delegated networks” to provide certain services. A delegated network is an entity that arranges for or provides medical care to an HMO’s members on behalf of the health plan in exchange for a predetermined payment from the HMO. Some delegated networks require the member to receive services only from providers in the delegated network.

Delegated network contracts do not limit the HMO’s responsibility for complying with state law and regulations. Delegated networks are required to comply with the same state laws and regulations as HMOs. HMOs are responsible for monitoring the services provided through delegated networks.

Delegated networks are prohibited from billing HMO members or collecting any payment other than authorized copayments or deductibles. If you have a concern about the care you receive through a delegated network, contact your HMO representative.

Your Rights in an HMO

Texas has some of the most comprehensive patient protection laws in the nation.

All HMOs must have an internal appeals procedure to allow members to contest a decision to deny recommended medical treatment, including denials of medications that are not on the HMO’s formulary.

After you exhaust your appeal rights within the HMO, you can request an Independent Review Organization (IRO) to review the denial and make a determination. The IRO’s decision is legally binding on the HMO. An IRO review is only available if the HMO decides that the covered service or treatment is not medically necessary. For example, the IRO review is not available if the decision to deny coverage is due to an exclusion in your contract. In addition, not all health plans are subject to the IRO review process. You should contact your plan to determine whether an IRO review is available to you when services or treatments are denied. You also have the right to take legal action against an HMO for harm caused by any treatment decisions.

The HMO must have a procedure to resolve complaints from members and a procedure for members to appeal the decision if they’re not satisfied with the resolution of the complaint. HMOs may not cancel or retaliate against a group contract holder (employer), a doctor, or a patient who files a complaint against an HMO or appeals an HMO’s decisions.

HMOs may not prohibit doctors from talking to you about your medical condition, treatment options, and terms and requirements of your health care plan, including how to appeal an HMO’s decision. An HMO also may not provide financial rewards to doctors for withholding necessary care.

Texas law provides the following additional protections by requiring that HMOs

• have adequate personnel and facilities
  
• make covered health care services available within a certain mileage
• allow referrals to out-of-network providers when medically necessary covered services aren’t available within the network
• allow members with chronic, disabling, or life-threatening illnesses to use specialists as their primary care physicians under certain circumstances
• allow members to continue seeing terminated providers for specified periods of time if there are special circumstances, such as a terminal illness, disability, life-threatening condition, or pregnancy, and if the provider agrees to continue treatment at the HMO’s payment level
• allow members to change a primary care physician up to four times a year
• pay for care in an emergency facility if not getting immediate medical care could place your health – or the health of your unborn child if you’re pregnant – in serious jeopardy. If emergency treatment is provided by a facility outside the HMO’s network, the member may be transferred to a network facility and physician once the patient’s condition is stabilized.

When evaluating any type of health plan, be sure you understand the full extent of the coverage it provides. Choose a plan with the highest level of coverage you can afford.

If you have a choice between an HMO and a traditional health care plan, consider the trade-offs. Are you willing to restrict your choice of health care providers to those in the HMO’s network in exchange for the savings an HMO may provide? Also, are you willing to potentially end a long-standing relationship with a doctor or health care provider who is not in the HMO’s network?

In addition to a health plan’s cost, consider the HMO’s customer service record. Consumer complaints against the HMO are a good indicator of the service you can expect. You can learn an HMO’s complaint history by calling TDI’s Consumer Help Line or by using the “Insurer Search” feature on our website.

The National Committee for Quality Assurance is an independent health-care monitoring organization that accredits HMOs and issues annual report cards for managed care plans. To learn more about a plan or an HMO, call the NCQA or visit its website

1-888-275-7585
www.ncqa.org

The Texas Office of Public Insurance Counsel (OPIC) issues two annual reports that compare and evaluates HMOs in Texas. “Comparing Texas HMOs” includes a survey asking members how they rate their plans, the quality of care they receive, and their doctors. This report also provides the number of customer and doctor complaints against HMOs. “Guide to Texas HMO Quality” compares detailed data on quality of care delivered by Texas HMOs. This data is reported annually by HMOs using the standardized Health Plan Employer Data and Information Set measures. To request a copy of these reports, contact OPIC, or visit its website

1-512-322-4143
www.opic.state.tx.us

In addition, carefully review information from the HMO, including the benefits booklet. Ask the HMO’s representative or your employer’s benefits coordinator the following questions:

• Is my current family doctor in the HMO’s network?
• Which hospitals are in the HMO’s network?
• Which specialists will the plan allow me to see?
• What will my expenses (premiums and copayments) be?
• Is there a deductible I have to meet before the HMO will pay for emergency services performed out of the HMO’s service area or for services performed by a physician or provider who is not in the HMO’s network?
• What is the maximum amount I’ll have to pay out of pocket?
• Where are the plan’s doctors and hospitals located?
• How many members left the health plan last year?

Filing a Complaint

If you have a problem with an HMO, first file a complaint through the HMO’s internal complaint process. If the problem persists, TDI may be able to help. Call our Consumer Help Line.

TDI handles complaints about the quality or availability of HMO medical care and administrative procedures (claims, billing, enrollment, appeals, etc.). A complaint form is available on our website, which you may either print and mail or submit online. You also may obtain complaint forms by calling the Consumer Help Line.  Send your complaint along with copies of any related documentation to

Texas Department of Insurance
HMO Quality Assurance (103-6A)
P.O. Box 149091
Austin, TX 78714-9091
512-490-1012 (fax)

If the problem involves medical treatment provided by your doctor, you also may want to call the Texas Medical Board

1-800-248-4062

For More Information or Assistance

For answers to general insurance questions or for information about filing an insurance-related complaint, visit our website or call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday

www.tdi.state.tx.us
1-800-252-3439
463-6515 in Austin

For printed copies of consumer publications, call the 24-hour Publications Order Line

1-800-599-SHOP (7467)
305-7211 in Austin

Help us prevent insurance fraud. To report suspected fraud, call our toll-free Fraud Hot Line

1-888-327-8818

To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hot Line

1-877-4FIRE45 (434-7345)

The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.

For more information contact: ConsumerProtection@tdi.state.tx.us