HMO (Health Maintenance Organization): FSA Eligibility

What is an HMO?

A health maintenance organization, also commonly referred to as an HMO, is a type of insurance plan in which the policyholder fight chooses a primary care physician (PCP) from the insurance company's network of local healthcare providers, who will handle all primary care responsibilities and refer the policyholder to specialists and hospitals when advanced care is necessary. As a result, all care is coordinated through this primary care physician. HMO plans are typically cheaper in monthly premiums and deductibles than other forms of insurance coverage, and many patients find that utilizing a PCP as a point of contact for care decisions is much easier than visiting multiple specialists (Humana).

While HMO plans are usually less expensive than others on the market, policyholders have less freedom than other plan holders in their ability to seek out medical care. For instance, under an HMO plan, policyholders must obtain a referral from their PCP to visit a specialist, this PCP must authorize a specific type of treatment plan, and medical expenses outside of the plan's network will not be covered.

How are HMO premiums reimbursed?

For a policyholder to continue to receive coverage through his/her insurance plan, premiums must be paid according to the policy's payment plan schedule, but it is left up the policyholder to decide where these funds should come from. For instance, a flexible spending account (FSA) is only designed to cover medical products and services for an account holder, his/her spouse and dependents. As regulation IRC 213(d) states regarding the FSA account spending: "medical care includes amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body." Health insurance premiums fall outside of this definition and pay for coverage, not direct care, so therefore FSA funds cannot cover policy premiums.

Conversely, business-sponsored accounts like health reimbursement arrangements (HRAs) may be underwritten to cover HMO premiums, but this is left up to the employer to decide and varies greatly. Generally, HSAs cannot be used to pay health insurance premiums unless paying for health coverage while receiving unemployment benefits or under COBRA continuation coverage.