• Patients have the freedom to choose their own doctors. Immunizations and regular physical examinations are typically not covered.
• Copayments and deductible charges are usually required, the amount varying according to policy stipulations.
• The patient must file a claim for every office visit and often for every prescription.
• The insurance company processes and pays the claims; it has no jurisdiction over the physicians and the hospitals.
  Both insurance companies and health maintenance organizations operate in highly regulated industries and both are regularly audited to ensure compliance with strict state and/or federal government requirements.

Sales and Marketing
How HMOs market their services

HMO Sales Departments contact prospective employers, usually through the Employee Benefits Department, either directly or through insurance brokers. They provide employers with a premium quote. In addition, the Sales Department or broker can offer information about the HMO's facilities, staff qualifications, available products, processing capabilities and utilization and cost-savings reporting.

Many employers want to offer their employees a "dual option" benefit plan which includes a choice between an HMO and an indemnity plan. Others even offer a "triple option," which includes the addition of a point-of-service plan. This type of coverage allows the member to have full medical benefits provided by an HMO with the option of going outside the HMO's network. For medical services obtained outside of the network, a point-of-service plan generally covers 60 or 70 percent of the cost.

Employer groups generally select health maintenance organizations and insurance carriers based on the quality of their services and their ability to control health care costs.

Underwriting of Employer Groups
How premium rates are determined

An HMO which meets federal qualifications must offer a core of basic services to its members, including:

• Physicians' services, including consultation and referral
• Inpatient hospital care
• Outpatient and other ambulatory care
• Medically necessary emergency health services
• Short-term outpatient evaluation and crisis-intervention mental health services (with the minimum number varying by state)
• Medical treatment and referral services for alcohol and drug abuse or addiction.
• Diagnostic laboratory and therapeutic X-ray services
• Home health services
• Preventive health services, including immunizations, well-child care from the time of birth, periodic health evaluations for adults and family planning
  Each state in which an HMO is licensed may require other mandated benefits. In addition, an HMO may provide supplemental benefits such as coverage for vision, dental, mental health, prescription drugs, chiropractic services and durable medical equipment.

An appropriate premium, determined by an actuary, is based on the level of health care benefits, the amount of deductibles and copayments, the demographics of the organization's employees, brokers' commissions, if applicable, and the expected profit margin. A federally qualified HMO must base its premium rates on a community rating system, in which demographic factors such as age and sex are considered and then adjusted according to the employer group's projected utilization.

Indemnity insurance companies, in contrast, base premium rates on past claims costs and then adjust the premium retrospectively to reflect the "experience" of the employer group. The premium is often based on each employee's family size, with typical distinctions being single, dual and family rates. Some plans even have multiple family rates, depending on the number of dependents. In other cases, employees are all charged a composite premium rate that is the same for each employee no matter how many family dependents are enrolled.