II.

Health Maintenance Organizations

HMOs provide comprehensive medical services in exchange for a monthly payment from the plan participant. HMOs developed in the early 1970s with the passage of the federal Health Maintenance Organization Act of 1973. The law applied minimum, uniform standards in all 50 states for a health insurance organization to qualify as an HMO. Under those standards, an HMO had to provide a comprehensive set of medical services for a prepaid fee or with minimal copayments and could not deny coverage to people with preexisting illnesses. The standards also required that participants in the plan be represented in making decisions about how the plan was administered.

Once an HMO meets these federal standards, the law permits it to require most employers that offer health insurance in a region served by the HMO to offer an HMO benefit. Requiring an employer to offer an HMO as a health insurance alternative is referred to as “mandating” the employer. In the first years after this legal option became available, it gave HMOs the ability to broaden their access to the marketplace. Today, however, mandating is seldom used because HMOs have become so popular and widespread. By the year 2000, more than half of Americans with health insurance were enrolled in managed care plans, a large percentage of them in HMOs.

Although HMO plans offer comprehensive coverage of healthcare services, participants face restrictions on their choices of doctors and hospitals. HMOs either hire physicians directly as salaried employees or contract with them on the basis of predetermined fees. HMOs may also own the clinics or hospitals that are staffed by these physicians. The services provided by these member physicians and facilities are paid for almost in their entirety by the HMO; services provided by nonmember physicians and facilities are not covered except with prior approval or in the case of emergencies.

In order to receive services from an HMO, a participant first enrolls as a plan member. Enrollment requires providing information about each family member to be covered, arranging to pay the required monthly fee, and selecting one of the member physicians as the primary care physician (the first physician that a patient consults). A membership card is issued and printed material describing the plan’s coverage is provided to the new enrollee. When the HMO member needs healthcare services, he or she makes an appointment to see the primary care physician. The physician provides the needed treatment or decides that the condition warrants referral to a specialist.

Most HMO members enroll through the employee benefit program at their place of employment. Once enrollment forms are complete, coverage usually begins the first of the next month.

People may also enroll directly in HMOs as individual members. For example, some HMOs accept senior citizens (those aged 65 and older) under special programs established to accept a monthly payment from Medicare. These special programs accounted for a big growth in individual memberships since the mid-1990s. Senior citizens can choose a basic plan for which the Medicare payment covers all or nearly all of the cost of the HMO membership. Alternatively, the plan member may choose a more extensive plan. By paying an additional premium, the member can get benefits not normally covered by Medicare, such as free or greatly discounted prescription drugs.

HMOs are organized in two different ways. A group practice association HMO houses physicians and other health-care services in its own locations. The healthcare providers who work at the HMO may be independent contractors or employees of the HMO. If the relationship is that of employer-employee, the type of group practice is called a staff model HMO. Under either type of contractual arrangement, HMO members are eligible to receive services from any physician who is a member of the group. An independent practice association HMO establishes a contractual relationship with doctors in private practice and with hospitals to provide services to its members. In both instances, physicians who participate in HMOs typically are paid a flat monthly amount for each patient enrolled in the HMO who has selected that doctor as their primary care physician. The doctor receives the same amount each month whether or not the patient requires health services.