A
health maintenance organization (
HMO) is a type of
managed care organizationThe term managed care is used to describe a variety of techniques intended to reduce the cost of providing health benefits and improve the quality of care for organizations that use those techniques or provide them as services to other organizations , or to describe systems of financing and...
(MCO) that provides a form of
health care coverageHealth insurance is insurance that pays for medical expenses. It is sometimes used more broadly to include insurance covering disability or long-term nursing or custodial care needs. It may be provided through a government-sponsored social insurance program, or from private insurance companies...
in the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. The
Health Maintenance Organization Act of 1973The Health Maintenance Organization Act of 1973 , also known as the HMO Act of 1973, 42 U.S.C. § 300e, is a law passed by the Congress of the United States that resulted from discussions Paul Ellwood had with what is today the Department of Health and Human Services...
required employers with 25 or more employees to offer federally certified HMO options. Unlike traditional
indemnityAn indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnifying party may or may not be responsible for the loss suffered by the indemnified party...
insurance, an HMO covers only care rendered by those doctors and other professionals who have agreed to treat patients in accordance with the HMO's guidelines and restrictions in exchange for a steady stream of customers.
Most HMOs require members to select a
primary care physicianA primary care physician, or PCP, is a physician/medical doctor who provides both the first contact for a person with an undiagnosed health concern as well as continuing care of varied medical conditions, not limited by cause, organ system, or diagnosis....
(PCP), a doctor who acts as a "
gatekeeperGatekeeper or gatekeeping may refer to:* Gatekeeping , a person or organization who manages or constrains a flow of knowledge* Gatekeeping , controlling the rate at which students progress to more advanced levels of study...
" to direct access to medical services.
A
health maintenance organization (
HMO) is a type of
managed care organizationThe term managed care is used to describe a variety of techniques intended to reduce the cost of providing health benefits and improve the quality of care for organizations that use those techniques or provide them as services to other organizations , or to describe systems of financing and...
(MCO) that provides a form of
health care coverageHealth insurance is insurance that pays for medical expenses. It is sometimes used more broadly to include insurance covering disability or long-term nursing or custodial care needs. It may be provided through a government-sponsored social insurance program, or from private insurance companies...
in the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. The
Health Maintenance Organization Act of 1973The Health Maintenance Organization Act of 1973 , also known as the HMO Act of 1973, 42 U.S.C. § 300e, is a law passed by the Congress of the United States that resulted from discussions Paul Ellwood had with what is today the Department of Health and Human Services...
required employers with 25 or more employees to offer federally certified HMO options. Unlike traditional
indemnityAn indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnifying party may or may not be responsible for the loss suffered by the indemnified party...
insurance, an HMO covers only care rendered by those doctors and other professionals who have agreed to treat patients in accordance with the HMO's guidelines and restrictions in exchange for a steady stream of customers.
Operation
Most HMOs require members to select a
primary care physicianA primary care physician, or PCP, is a physician/medical doctor who provides both the first contact for a person with an undiagnosed health concern as well as continuing care of varied medical conditions, not limited by cause, organ system, or diagnosis....
(PCP), a doctor who acts as a "
gatekeeperGatekeeper or gatekeeping may refer to:* Gatekeeping , a person or organization who manages or constrains a flow of knowledge* Gatekeeping , controlling the rate at which students progress to more advanced levels of study...
" to direct access to medical services. PCPs are usually internists, pediatricians, family doctors, or
general practitionerA general practitioner or GP is a medical practitioner who provides primary care and specializes in family medicine. A general practitioner treats acute and chronic illnesses and provides preventive care and health education for all ages and both sexes...
s (GPs). Absent a medical emergency, patients need a referral from the PCP in order to see a specialist or other doctor, and the gatekeeper cannot authorize that referral unless the HMO guidelines deem it necessary.
"Open access" HMOs do not use gatekeepers - there is no requirement to obtain a referral before seeing a specialist. The beneficiary cost sharing (e.g., co-payment or coinsurance) may be higher for specialist care, however.
HMOs also manage care through utilization review. That means they monitor doctors to see if they are performing more services for their patients than other doctors, or fewer. HMOs often provide preventive care for a lower
copaymentThe copayment or copay is a payment defined in the insurance policy and paid by the insured person each time a medical service is accessed. It is technically a form of coinsurance, but is defined differently in health insurance where a coinsurance is a percentage payment after the deductible up to...
or for free, in order to keep members from developing a preventable condition that would require a great deal of medical services. When HMOs were coming into existence, indemnity plans often did not cover preventive services, such as immunizations, well-baby checkups, mammograms, or physicals. It is this inclusion of services intended to maintain a member's health that gave the HMO its name. Some services, such as outpatient mental health care, are limited, and more costly forms of care, diagnosis, or treatment may not be covered. Experimental treatments and elective services that are not medically necessary (such as elective
plastic surgeryPlastic surgery is a medical specialty concerned with the correction or restoration of form and function. While famous for aesthetic surgery, plastic surgery also includes two main fields: body modification and reconstructive surgery...
) are almost never covered.
Other Choices for managing care are case management, in which patients with catastrophic cases are identified, or
disease managementDisease management is defined as "a system of coordinated health care interventions and communications for populations with conditions in which patient self-care efforts are significant." It is the process of reducing healthcare costs and/or improving quality of life for individuals by preventing...
, in which patients with certain chronic diseases like diabetes,
asthmaAsthma is a predisposition to chronic inflammation of the lungs in which the airways are reversibly narrowed. Asthma affects 7% of the population of the United States, and 300 million worldwide...
, or some forms of
cancerCancer is a class of diseases in which a group of cells display uncontrolled growth , invasion , and sometimes metastasis...
are identified. In either case, the HMO takes a greater level of involvement in the patient's care, assigning a case manager to the patient or a group of patients to ensure that no two providers provide overlapping care, and to ensure that the patient is receiving appropriate treatment, so that the condition does not worsen beyond what can be helped.
Cost containment
Although businesses pursued the HMO model for its alleged cost containment benefits, some research indicates that private HMO plans don't achieve any significant cost savings over non-HMO plans. Although out-of-pocket costs are reduced for consumers, controlling for other factors, the plans don't affect total expenditures and payments by insurers. A possible reason for this failure is that consumers might increase utilization in response to less cost sharing under HMOs.
History
The earliest form of HMOs can be seen in a number of
prepaid health plans. In 1910, the Western Clinic in
Tacoma, WashingtonTacoma is a mid-sized urban port city in and the county seat of Pierce County, Washington, United States. The city is on Washington's Puget Sound, southwest of Seattle, northeast of the state capital, Olympia, and northwest of Mount Rainier National Park...
offered lumber mill owners and their employees certain medical services from its providers for a premium of $0.50 per member per month. This is considered by some to be the first example of an HMO. However,
Ross-Loos Medical GroupRoss-Loos Medical Group was a comprehensive prepaid health services plan with 29 medical offices throughout Los Angeles, Orange, Riverside and San Bernardino Counties in California and a large multi-specialty hospital located on Temple Street in Los Angeles....
, established in 1929, is considered to be the first HMO in the United States; it was headquartered in
Los AngelesLos Ángeles is the capital of the province of Biobío, in the municipality of the same name, in Region VIII , in the center-south of Chile. It is located between the Laja and Biobío rivers. The population is 123.445 inhabitants...
and initially provided services for
Los Angeles Department of Water and PowerThe Los Angeles Department of Water and Power is the largest municipal utility in the United States, serving over 4 million residents as of 2008. It was founded in 1902 to supply water and electricity to residents and businesses in Los Angeles and surrounding communities...
(DWP) and Los Angeles County employees. Approximately 500 DWP employees enrolled at a cost of $1.50 each per month. Within a year, the
Los Angeles Fire DepartmentThe Los Angeles Fire Department is the agency that provides fire protection and emergency medical services for the city of Los Angeles....
signed up, then the
Los Angeles Police DepartmentThe Los Angeles Police Department is the police department of the city of Los Angeles, California. With nearly 9,900 officers and more than 3,000 civilian staff, covering an area of with a population of more than 3.8 million people, it is one of the largest law enforcement agencies in the United...
, then the Southern California Telephone Company, (now
at&tAT&T Inc. is the largest provider of local, long distance telephone services in the United States, and also serves digital subscriber line Internet access. AT&T is the second largest provider of wireless service in the United States, with over 77 million wireless customers, and more than 150...
) and more. By 1951, enrollment stood at 35,000 and included teachers, county and city employees. In 1982 through the merger of the Insurance Company of North America (INA) founded in 1792 and Connecticut General (CG) founded in 1865 came together to become
CIGNACIGNA Corporation is an American for profit health insurance company. The health care headquarters are located in Bloomfield, Connecticut, while the corporate headquarters are located at Two Liberty Place in Center City Philadelphia, Pennsylvania...
. Ross-Loos Medical Group, became now known as
CIGNACIGNA Corporation is an American for profit health insurance company. The health care headquarters are located in Bloomfield, Connecticut, while the corporate headquarters are located at Two Liberty Place in Center City Philadelphia, Pennsylvania...
HealthCare. Also in 1929 Dr. Michael Shadid created a health plan in
Elk City, OklahomaElk City is a city in Beckham County, Oklahoma, United States. The population was 10,510 at the 2000 census. Elk City is located on Interstate 40 and Historic U.S...
in which farmers bought shares for $50 to raise the money to build a hospital. The medical community did not like this arrangement and threatened to suspend Shadid's licence. The Farmer's Union took control of the hospital and the health plan in 1934. Also in 1929, Baylor Hospital provided approximately 1,500 teachers with prepaid care. This was the origin of Blue Cross. Around 1939, state medical societies created
Blue ShieldBlue Shield may refer to:*Blue Cross and Blue Shield Association*International Committee of the Blue Shield*Blue Shield , a Marvel Comics Superhero...
plans to cover physician services, as Blue Cross covered only hospital services.
These prepaid plans burgeoned during the
Great DepressionThe Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
as a method for providers to ensure constant and steady revenue.
In 1970, the number of HMOs declined to less than 40. Paul Ellwood, often called the "father" of the HMO, began having discussions with what is today the U.S. Department of Health and Human Services that led to the enactment of the
Health Maintenance Organization Act of 1973The Health Maintenance Organization Act of 1973 , also known as the HMO Act of 1973, 42 U.S.C. § 300e, is a law passed by the Congress of the United States that resulted from discussions Paul Ellwood had with what is today the Department of Health and Human Services...
. This act had three main provisions:
- Grants and loans were provided to plan, start, or expand an HMO
- Certain state-imposed restrictions on HMOs were removed if the HMOs were federally certified
- Employers with 25 or more employees were required to offer federally certified HMO options alongside indemnity upon request
This last provision, called the dual choice provision, was the most important, as it gave HMOs access to the critical employer-based market that had often been blocked in the past. The federal government was slow to issue regulations and certify plans until 1977, when HMOs began to grow rapidly. The dual choice provision expired in 1995.
In 1971, Dr.
Gordon K MacLeodGordon Kenneth MacLeod, MD was a physician and professor of health services administration at the University of Pittsburgh Graduate School of Public Health, who also served as the state of Pennsylvania's secretary of health ....
MD developed and became the director of the United States' first federal Health Maintenance Organization (HMO) program. He was recruited by Elliot Richardson, former secretary of the U.S. Department of Health, Education and Welfare.
Switzerland
Since 1990,
SwitzerlandSwitzerland , officially the Swiss Confederation , is a federal republic consisting of 26 states named cantons, with Bern as the seat of the federal authorities...
has funded several HMOs, covering 10 percent of the Swiss population as of March 2006; most HMOs are located in cities. The percentage would be much higher if there were HMOs in all regions. There are mountainous regions where the population density is too low to support HMOs. Insurances grant premium reductions to people who visit HMOs instead of their normal doctor; but this, at the same time, lures younger and healthier people into HMO insurance schemes, thus negating some of the financial benefits for the overall healthcare system. Switzerland, in stark contrast to the US, has an obligatory health insurance in effect, and thus Swiss HMOs are more complex entities than in the United States.
Types of HMOs
HMOs operate in a variety of forms. Most HMOs today do not fit neatly into one form; they can have multiple divisions, each operating under a different model, or blend two or more models together.
In the
staff model, physicians are salaried and have offices in HMO buildings. In this case, physicians are direct employees of the HMOs. This model is an example of a closed-panel HMO, meaning that contracted physicians may only see HMO patients.
In the
group model, the HMO does not employ the physicians directly, but contracts with a multi-specialty physician group practice. Individual physicians are employed by the group practice, rather than by the HMO. The group practice may be established by the HMO and only serve HMO members ("captive group model").
Kaiser PermanenteKaiser Permanente is an integrated managed care organization, based in Oakland, California, United States, founded in 1945 by industrialist Henry Kaiser and physician Sidney Garfield...
is an example of a captive group model HMO rather than a staff model HMO, as is commonly believed. An HMO may also contract with an existing, independent group practice ("independent group model"), which will generally continue to treat non-HMO patients. Group model HMOs are also considered closed-panel, because doctors must be part of the group practice to participate in the HMO - the HMO panel is closed to other physicians in the community.
Physicians may contract with an
independent practice associationAn independent practice association is an association of independent physicians, or other organization that contracts with independent physicians, and provides services to managed care organizations on a negotiated per capita rate, flat retainer fee, or negotiated fee-for-service basis...
(IPA), which in turn contracts with the HMO. This model is an example of an open-panel HMO, where a physician may maintain their own office and may see non-HMO members.
In the
network model, an HMO will contract with any combination of groups, IPAs, and individual physicians. Since 1990, most HMOs run by managed care organizations with other lines of business (such as
PPOIn health insurance in the United States, a preferred provider organization is a managed care organization of medical doctors, hospitals, and other health care providers who have covenanted with an insurer or a third-party administrator to provide health care at reduced...
,
POSA point of service plan, or POS plan, is a type of managed care health insurance system. It combines characteristics of both the HMO and the PPO...
and indemnity) use the network model.
Regulation in the US
HMOs are regulated at both the state and federal levels. They are licensed by the states, under a license that is known as a certificate of authority (COA) rather than under an insurance license. In 1972 the
National Association of Insurance CommissionersThe National Association of Insurance Commissioners is an Internal Revenue Code Section 501 non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States...
adopted the HMO Model Act, which was intended to provide a model regulatory structure for states to use in authorizing the establishment of HMOs and in monitoring their operation.
Legal responsibilities
HMOs often have a negative public image due to their restrictive appearance. HMOs have been the target of lawsuits claiming that the restrictions of the HMO prevented necessary care. Whether an HMO can be held responsible for a physician's
negligenceNegligence is a legal concept in the common law legal systems usually used to achieve compensation for injuries . Negligence is a type of tort or delict . However, the concept is sometimes used in criminal law as well...
partially depends on the HMO's screening process.
Citation? If an HMO only contracts with providers meeting certain quality criteria and advertises this to its members, a court may be more likely to find that the HMO is responsible, just as hospitals can be liable for negligence in selecting physicians. Despite the fact that the HMO makes medical decisions while controlling the financial aspect of providing care, it is often insulated from malpractice lawsuits. The
Employee Retirement Income Security ActThe Employee Retirement Income Security Act of 1974 is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans...
(ERISA) can be held to preempt negligence claims as well. In this case, the deciding factor is whether the harm results from the plan's administration or the provider's actions.
Organizations
- Aetna
Aetna, Inc. is an American diversified health insurance company, providing a range of traditional and consumer directed health care insurance products and related services, including medical, pharmaceutical, dental, behavioral health, group life, long-term care, and disability plans, and medical...
- CIGNA
CIGNA Corporation is an American for profit health insurance company. The health care headquarters are located in Bloomfield, Connecticut, while the corporate headquarters are located at Two Liberty Place in Center City Philadelphia, Pennsylvania...
- Kaiser Permanente
Kaiser Permanente is an integrated managed care organization, based in Oakland, California, United States, founded in 1945 by industrialist Henry Kaiser and physician Sidney Garfield...
- Humana
Humana Inc. , founded in 1961 in Louisville, Kentucky, is a Fortune 100 company that markets and administers health insurance. With a customer base of over 11.5 million in the United States, the company is the largest Fortune 100 company headquartered in the Commonwealth of Kentucky, and has a...
- Health Net
Health Net, Inc. is among the United States of America's largest publicly traded managed health care companies. The company’s HMO, POS, insured PPO and government contracts subsidiaries provide health benefits to approximately 6.6 million individuals in all 50 states and the District of Columbia...
- Wellpoint
WellPoint, Inc. is a large, U.S. based health insurance company and the largest member of the Blue Cross and Blue Shield Association. It was formed when WellPoint Health Networks, Inc. merged into Anthem, Inc., with the surviving Anthem adopting the name, WellPoint, Inc...
See also
- America’s Health Insurance Plans
- Capitated reimbursement
- Health insurance in the United States
The term health insurance is commonly used in the United States to describe any program that helps pay for medical expenses, whether through privately purchased insurance, social insurance or a non-insurance social welfare program funded by the government...
- Managed care
The term managed care is used to describe a variety of techniques intended to reduce the cost of providing health benefits and improve the quality of care for organizations that use those techniques or provide them as services to other organizations , or to describe systems of financing and...
- Medicare (United States)
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. The medicare program also funds residency training programs for the vast majority of physicians in the...
- Preferred provider organization
In health insurance in the United States, a preferred provider organization is a managed care organization of medical doctors, hospitals, and other health care providers who have covenanted with an insurer or a third-party administrator to provide health care at reduced...
- Publicly-funded health care
Publicly-funded health care is a form of health care financing designed to meet the cost of all or most health care needs from a publicly managed fund. Usually this is under some form of democratic accountability, the right of access to which are set down in rules applying to the whole population...
- Sicko
Sicko is a 2007 documentary film by American film maker Michael Moore. The film investigates the American health care system, focusing on its health insurance and pharmaceutical industry. The film compares the for-profit, non-universal U.S...
A movie critical of HMOs
- Single-payer health care
Single-payer health care is a public service financing the delivery of near-universal or universal health care to a given population as defined by age, citizenship, residency, or any other demographic....
External links