Health Maintenance Organization (HMO)


In the United States, a health maintenance organization is a medical insurance group that provides health services for a fixed annual fee. It is an organization that provides or arranges managed care for health insurance, self-funded health care benefit plans, individuals, and other entities, acting as a liaison with health care providers on a prepaid basis. The Health Maintenance Organization Act of 1973 required employers with 25 or more employees to offer federally certified HMO options if the employer offers traditional healthcare options. Unlike traditional indemnity insurance, an HMO covers care rendered by those doctors and other professionals who have agreed by contract to treat patients in accordance with the HMO’s guidelines and restrictions in exchange for a steady stream of customers. HMOs cover emergency care regardless of the health care provider’s contracted status.

Health Maintenance Organization (HMO)

What is a ‘Health Maintenance Organization – HMO’

A health maintenance organization (HMO) is an organization that provides health coverage with providers under contract. A Health Maintenance Organization (HMO) differs from traditional health insurance by the contracts it has with its providers. These contracts allow for premiums to be lower, because the health providers has the advantage of having patients directed to them; but these contracts also add additional restrictions to the HMO’s members.

Explaining ‘Health Maintenance Organization – HMO’

HMO’s are believed to have been started in the early 1900s when companies began to offer employees plans of prepaid medical service, and have done very well since. The HMO Act of 1973 helped to cement the HMO into the U.S. health system by providing grants to start or expand HMOs, removing many restrictions imposed by the individual states, and required employers with more than 25 employees to offer a federally-certified HMO to employees.

Further Reading

  • Antihypertensive pharmacotherapy: Economic outcomes in a health maintenance organization – [PDF]
  • Do HMOs have monopsony power? – [PDF]
  • Strategic relatedness in mergers and financial performance: the case of the health maintenance organization industry in the United States – [PDF]
  • How do financial incentives affect physicians' clinical decisions and the financial performance of health maintenance organizations? – [PDF]
  • Health maintenance organizations, financial incentives, and physicians' judgments – [PDF]
  • … and economic impact associated with a program for outpatient management of acute deep vein thrombosis in a group model health maintenance organization – [PDF]
  • The effect of financial pressure on the quality of care in hospitals – [PDF]
  • Ethics consultations masking economic dilemmas in patient care – [PDF]
  • Strategic hospital alliances: impact on financial performance – [PDF]
  • Patients and profits: the relationship between HMO financial performance and quality of care – [PDF]