How does an HMO primarily manage healthcare costs?

An HMO (Health Maintenance Organization) primarily manages healthcare costs by implementing a system that requires referrals and limits access to specialists. This approach helps control costs by directing patients to primary care physicians who serve as gatekeepers to specialty care. By requiring a referral from a primary care provider before a patient can see a specialist, HMOs can ensure that services provided are necessary and appropriate, which helps prevent unnecessary tests and procedures that could drive up costs.

Furthermore, this coordinated care model allows HMOs to negotiate better rates with healthcare providers and manage patient care more effectively, since members are encouraged to use a network of doctors and hospitals. It ultimately leads to lower overall healthcare expenses for both the organization and its members while promoting preventive care and regular check-ups, which can reduce the need for more expensive interventions later on.

The other options do not reflect how HMOs function in regard to cost management. Members seeing any doctor without a referral typically relates to PPO (Preferred Provider Organization) models, while options regarding unlimited annual coverage and charging lower premiums without restrictions do not accurately depict the common cost control methodologies employed by HMOs.