The HMO is the oldest modern managed-care model in the U.S. commercial insurance market. It traces back to the 1973 Health Maintenance Organization Act, which gave federal preemption and funding to organizations structured around prepaid, network-based care. Today, HMO enrollment in the U.S. sits at roughly 50 million people, concentrated heavily in California, Hawaii, Oregon, Washington, and the northeastern markets where Kaiser Permanente and regional carriers remain dominant. For benefits teams, the HMO is one of three common plan types to slot into an employer menu, each with different cost, access, and administrative tradeoffs.
How an HMO Actually Works The defining features of an HMO are the closed network and the PCP gatekeeper. Members choose a primary care physician from the in-network list. Visits to specialists, imaging, physical therapy, and many other services require a referral from the PCP. Out-of-network care is generally not covered except in emergencies. In exchange, premiums and out-of-pocket costs are typically lower than in a PPO with comparable benefits.
Some HMO variants offer a Point of Service (POS) option that allows out-of-network care at a higher cost share, which blends the HMO's low in-network cost with partial PPO-like flexibility. HMO plan selection is typically one piece of a larger employee benefits menu alongside FSA and HSA options.
What's the Difference Between an HMO and a PPO? A PPO (Preferred Provider Organization) has a larger network, does not require a PCP, and generally allows out-of-network care at a higher cost share. Premiums and out-of-pocket costs are typically higher than HMOs. A PPO trades price for flexibility; an HMO trades flexibility for price.
How HMOs Work With Employer Benefits Design Employers offering an HMO typically include it as one option in a multi-plan menu alongside a PPO and possibly a High Deductible Health Plan (HDHP) paired with a health savings account or a health care FSA . HMOs tend to appeal to employees with established PCP relationships in-network, families with predictable medical use, and employees who prefer lower monthly premiums to broader choice.
The contribution strategy matters. Some employers use a defined contribution model where the employer covers a fixed dollar amount and employees pay the difference for richer plans, which tends to skew enrollment toward the HMO. Other employers use percentage-of-premium contributions, which makes the HMO relatively more expensive to the employee than it appears and dampens HMO enrollment.
Where HMO Enrollment Trends Are Going HMO share has been roughly stable over the last decade, though the specific mix of HMO, PPO, and HDHP/HSA has shifted. Kaiser Family Foundation's annual Employer Health Benefits Survey consistently shows HMO at around 12-14% of covered workers, with HDHPs growing and PPOs still dominant. Regionally, the picture looks very different: in California, Kaiser HMO enrollment alone often exceeds 40% of the insured population.
For 2026, the major premium inflation across all plan types (averaging around 7-9% year over year) has made HMO premium economics relatively more attractive to employees making the plan choice, which may slightly reverse the slow HMO decline of recent years.
Choosing How HMOs Fit Into Your Benefits Program Whether an HMO belongs in your plan menu depends on your workforce geography, network availability, and cost-sharing philosophy. In markets where a strong regional HMO is available (California, Portland, Seattle, Honolulu), offering the HMO is usually a meaningful value add for employees. In markets without a dominant HMO carrier, PPO and HDHP options often cover the need better. Review plan enrollment data annually at open enrollment close. If HMO enrollment is under 5% of eligible employees and the plan requires meaningful administrative overhead to maintain, the right move may be to retire the option. Clean benefits menus beat crowded ones when the longer version confuses employees at onboarding .
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