Definition/Background
A Health Maintenance Organization (HMO) is a type of medical insurance plan that provides health care services to enrollees who pay a monthly fixed price called a premium. The premium remains constant regardless of how much medical attention the consumer receives in a given month (Miller). HMOs aim to provide preventive services as a means to prevent higher-cost services and more critical illness in the future. This initiative was written in Section 1301 of The Health Maintenance Organization Act of 1973 – the act that legally established the HMO. It states, “[HMOs will] provide medical social services for its members and encourage and actively provide for its members health education services, education in the appropriate use of health services, and education in the contribution each member can make to the maintenance of his own health” (Pub. L. 93-222).
HMOs differ from traditional U.S. health insurance policies, also known as fee-for-service plans or indemnity plans, because the plan limits coverage to health services offered by in-network doctors contracted specifically with the HMO. When consumers first enroll in an HMO plan, they are required to select a primary care physician (PCP) (Miller). They can then only see specialists at the referral of their PCP, which is why the HMO system became known as managed care. While fee-for-service plans have in-network doctors, consumers are free to visit specialists at their own request (Caldwell). The cost of an HMO plan versus fee-for-service insurance also varies. The traditionally insured pay both monthly premium payments and per-visit copayments. Copayments are charged each time the consumer sees a doctor, and they typically increase as patients see more specialized physicians (Caldwell). Since HMOs only require the fixed monthly payment, they often have lower out-of-pocket costs (Miller). The flowchart in Figure 1 differentiates two types of HMOs as well as traditional fee-for-service plans.
Fig. 1 Flowchart depicting how the National Compensation Survey determines type of medical insurance plan (Briscoe).
HMOs manage care in a variety of ways, including utilization review, preventive care, and case management. Utilization review methods monitor physicians by comparing the amount and cost of services they each provide for their patients (Becker 2274). Preventive care is issued to keep avoidable conditions from forming, which is why patients usually have lower premiums under an HMO plan. Getting preventative care early on, hopefully, decreases the chance of needing a large number of more complex and more expensive medical services down the road. Lastly, in case management, patients with dire accidents, ailments, or diseases are identified and given a case manager who ensures the patient receives proper treatment with the hope that the condition does not worsen (Yordi 83).
HMOs’ inception was in 1973 when President Nixon signed the Health Maintenance Organization Act of 1973 into law (Dorsey 1). The act set the plan’s fixed price as well as the basic benefits package that the consumer receives by enrolling in an HMO. Stated in Section 1302 of the Health Maintenance Organization Act, the basic benefits package consists of physician services from your PCP, inpatient and outpatient hospital services, “medically-necessary” emergency services, short-term outpatient evaluative and crisis-based mental health services, medical treatment and referrals for drug and alcohol abuse, diagnostic lab and radiologic services, and home health service (Pub. L. 93-222). In regards to payment, Section 1301 of the Act states that premiums are to be paid on a periodic basis without regard to dates of health care services. They are also fixed without regard to frequency or extent of service, fixed under a community rating system, and may be supplemented by adding nominal copayments that may be required for specific basic health services (Pub. L. 93-222). There are pros and costs to the low, periodic, and fixed payment plan of the HMO. Positively, the lower cost reduces the financial barrier created by traditional health insurance policies, which gives HMO members access to needed medical attention they may not have received otherwise. However, negatively, prepaid groups could be forced to cut back on certain benefits to keep their premiums competitive and consistent with the rating system mandated by the law, thus decreasing the quality of medical care provided (Dorsey 8).
Historical Context and Current Standing
The concept of managed care and the health maintenance organization developed in early 1970. Americans were uneasy about the rising costs of both Medicaid and Medicare. Additionally, complaints surfaced about poor access to health care services because of a maldistribution of health care facilities and providers (Gruber 197). Lobby groups called for national health insurance. In response, the Nixon administration began searching for a solution to the nation’s unrest. Dr. Paul Ellwood, an advisor to the Nixon administration and the founder of a well-regarded health care think tank, brought forth the idea of the HMO (Emling 36). Dr. Ellwood believed HMOs would restructure incentives in the private sector and, thus, “reward providers who emphasized health maintenance through prepaid, comprehensive care” (Gruber 197).
The Health Maintenance Organization Act of 1973 sped up HMO development by providing $50,000 in feasibility grants, $125,000 in planning grants, and up to one million dollars of other development money to qualified HMOs (Gruber 198). In addition to federal grants, the private-sector financed close to $800 million. By 1985, 18.9 million people had joined HMO plans (Gruber 198). There were a few factors that contributed to this rapid growth. Besides the influx of investment money, there was a widespread acceptance by employers of HMOs because of the plan’s cost-effectiveness. Also, the number of independent practice association (IPA) HMOs grew, which established a broader market presence for the HMO (Robinson 123). An IPA brings physicians together for the purpose of managed care but allows physicians to work separately in day-to-day operations of their personal practices. It allows a group of physicians to negotiate a mutually beneficial contract for themselves, the insurance companies, and patients (Robinson 123-124). Bringing physicians together under an IPA HMO allows patients a greater selection of physicians, thus increasing the attractiveness of enrolling in an HMO.
Another factor leading to HMO growth was legislation in the 1980s that allowed states to have greater flexibility in partnering with HMOs within their Medicaid and Medicare programs. For example, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) allowed for risk contracts between HMOs and Medicare beneficiaries, which made their partnership more beneficial for HMOs (Gruber 203). Section 1876 of TEFRA states that the entity (hospital, health care provider, et cetera) assumes full financial risk on a prospective basis for the provision of health care services (Pub. L. 97-248). This means that reimbursement contracts were paid on a prospective cost rather than a later readjustment for actual cost. This system better fit the method HMOs used to reimburse their commercial members, such as IPAs, thus strengthening their position in the health care insurance market (McMillan 87).
By the 1990s and early 2000s, HMOs had changed the organization of U.S. health care entirely. Doctors found themselves less in control of their practices and more beholden to corporations that made profits from the pre-paid pricing of managed care. The fee-for-service model of traditional health insurance was replaced by a system that paid doctors a set fee to care for all their patients. This system later became known as “capitation” (Simonet 361). This transition in the health care system created concerns from both physicians and patients, and, for the first time, total enrollment in the operating HMOs declined every year from 1990 to 2006. However, with the passage of the Affordable Care Act (ACA) in 2010, HMO enrollment increased for the following five years (Ingram 5). Both trends can be seen in Figure 2. The ACA provided tax credit on government-sponsored health insurance plans to ensure all Americans could have access to affordable health care. Looking to control medical expenses with the influx of ACA patients, insurers turned back to HMOs, which created the increase in enrollment (Japsen).
Fig. 2 HMO enrollment and market penetration in the 21st century
Controversy/Perspectives
Over the last forty years, the development and implementation of HMOs have not been without controversy. Proponents of the HMO highlight the system as being a major driver in decreasing insurance premiums, which is why managed care was developed in the first place. However, not everyone is convinced that the plan effectively lowers care premiums. Some believe it lowers cost at the expense of quality care – a tradeoff they are not comfortable making (Blendon 81). Some are not convinced it lowers health care costs at all. Surveys performed by Robert J. Blendon et al. showed that “a majority of Americans express concerns that in managed care plans, people may not receive the services they need when they are very sick” (84). Additionally, Blendon found that people in heavily managed care are more worried than their traditionally covered counterparts (86). While Blendon presents these concerns as true, he also considers that public backlash of managed care may be inspired by relatively rare cases that seem dramatic but are really only experienced by a few customers personally (91). Legislation has been introduced in almost every state surrounding HMOs. All have the purpose of quelling consumers’ fears of losing health care quality while still trying to maintain the cost-saving benefits of managed care (Blendon 80).
Sara J. Singer, the author of What’s Not to Like About HMOs and an HMO enrollee, had her story of HMO struggle published in the journal Health Affairs. Her experience began when she gave birth to her first child. While she was pregnant, she selected a pediatrician who contracted under her HMO. However, she later found out this pediatrician was under a different medical group than her own primary care physician, so she would be unable to send her daughter to this pediatrician according to HMO policy. Several weeks later, she called her HMO customer service line to inquire about this rule. The representative told Singer to select any physician under the HMO network, no matter the medical group, and assured her they would pick up the fees later on (Singer 207). Hours after delivering her child, she received a call from the hospital’s admitting department saying her HMO denied coverage for the pediatrician’s fees because that physician was not in-network, contradicting what the HMO representative promised over the phone. Her continued struggle to work with the HMO and alleviate her financial liability was a slow and painstaking process. Singer was left covering large physician’s bills (Singer 208). While Singer’s experience did not put her or her child’s immediate health at risk, she notes that if this had happened to someone with a serious illness, it could have been life-threatening. This story illustrates the larger concerns surrounding HMOs and their inefficiency, which risks customer satisfaction, quality care, and financial security.
An additional controversy stems from how services or physicians are included in the benefits package provided by an HMO. When HMOs were created, there were many competing interest groups of specialized physicians. Each group wanted their own services included in the mandatory benefits package because it would increase the volume of patients referred to their office, which would increase profits for physicians. Special interest groups include, but are not limited to, optometrists, dentists, National Institute of Alcoholism and Alcohol Abuse, and psychiatrists (Dorsey 8). This is controversial and often criticized because these physicians were not truly concerned with the prosperity of managed care but rather their own financial gain.
While physicians once competed to be incorporated into the HMO benefits package, today, physicians have also become wary of HMOs (Simonet 365). The HMO, as previously mentioned, changed the American health care system. Many of the mom-and-pop doctor’s offices that patients were accustomed to became large corporate hospitals managed by HMOs. This change in management has impacted the amount of control physicians have over their own practices and jobs, and a large number of doctors have joined trade unions to improve bargaining power with HMOs (Simonet 365). Physicians have seen a decrease in salary because of the capitation plans of HMOs. Additionally, since HMO customer service is often inefficient, as depicted in Singer’s story, it creates unnecessarily tense relations between physician and patient. Physicians have shared that when an HMO takes over a hospital its main focus is on increasing profitability, not increasing quality care (Simonet 365).
Advocates of the HMO have a vision of quality enhancement and cost containment in health care delivery. However, economists Jaeun Shin and Sangho Moon theorize that, in order to attain this vision, several developments are necessary. The first step suggests that plans measure quality of performance – rather than number of services provided or costs contained – and run a reward system based on the high-performance organizations (Shin 94). With the help of these performance reports, the consumer can then assume responsibility for making decisions on their own use and cost of health care services through their HMO. Lastly, Shin and Moon suggest that HMOs should create a monitoring system to prevent both consumers and providers from receiving or providing unnecessary procedures, evaluations, referrals, etc. In addition, this monitoring system should be run in conjunction with procedure standardization, again, to lower the number of unnecessary services (Shin 94).
Politics of Health
Controversy and concern over HMO plans stem from a powerful force at the center of politics of health – public narrative. Public narratives are stories that represent individual and collective responses to a certain event that shape collective memory through reliance on accepted narrative elements (Wertsch 120). HMO approval has been largely based on consumers’ perceptions of quality, cost, and overall access to health care. Robert J. Blendon, author of Understanding the Managed Care Backlash, writes, “Regardless of how well their plans perform today, people in managed care have greater fears than their traditionally insured peers do that their plan will fall short when they really need it” (80). These greater fears come from wide-reaching but rare occurrences spread via public narrative like Sara Singer’s story. Another example is of an 88-year-old woman dying from kidney failure. She needed dialysis to extend her life, but the dialysis would cost the HMO $40,000 a year. Since her physician’s annual bonus was based on the lowered cost of care he provided to patients, the doctor did not prescribe dialysis to his patient. The woman’s health deteriorated, and she died (“HMO Horror Stories”). This story depicts doctors contracted under HMOs as profit motivated at the expense of patient well-being and survival. Peter Kongstvedt, author of A History of Managed Care and Health Insurance in the United States, writes that these “serious, even if isolated, problems make good fodder for new using the well-proven reporting technique of “identifiable victim” stories” (Kongstvedt 22). Following these stories and others of their kind, many states passed “patient protection” laws that specified prudent layperson standards (Kongstvedt 23). These examples show the power of public narrative, and its ability to shape opinions as well as laws and policy.
Additionally, access to health care, or the right to health care, is at the crux of all insurance-based topics. Those in favor of national health insurance, which would legally enforce a form of health insurance that covers all Americans against high health care costs, believe that everyone has a right to health care (Rodberg). On the contrary, those in favor of private sector insurance do not necessarily believe that health care is a right universal to all people. Moreover, if the government were to subsidize American health care, it would make the health system expensive and inefficient (Cannon). As politicians, physicians, and economists debate an effective approach to health care – a debate that typically centers around financial responsibility, there are between 20,000 and 45,000 Americans that die each year due to lack of health insurance (“Facts on Deaths”). As Jan Gregoire Coombs quotes in her book The Rise and Fall of HMOs: An American Health Care Revolution, “Increasing commercialism in the health care industry clearly robbed most nonprofits of their important roles in protecting community health” (237). Shifting motivations from quality care to profit has taken a toll on patients and physicians alike. A few leaders in organized care have recognized the need to shift motivations back. Dr. Christopher Hughes, a critical care physician involved in organized medicine, called current leaders in the medical field those who prioritized social justice (Hughes). HMOs have the potential to bring health care to those who could not previously afford it since the plan offers health services at a lowered cost. However, policy-makers and physicians have more work ahead of them as they strive to provide basic health services to all Americans.
Works Cited
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Tax Equity and Fiscal Responsibility Act of 1982. Pub. L. 97-248. 96 Stat. 324-707. September 1982. Government Publishing Office. Web. 20 September 2017.
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