HMO History & Information

Origin and Growth

HMOs first appeared in the 1920s and 1930s as collectives to offer groups of workers affordable health care insurance. They quickly became popular during the Great Depression with both workers and employers. Offering health insurance to workers as a part of compensation packages became attractive to employers. HMOs grew in popularity in post-war United States as the baby boom began.

Rise of Medicare, Decline of the HMO

Beginning in the 1950s, the United States Military, the Social Security Administration and the AFL-CIO addressed the issue of lowering costs to patients of health care by consolidating benefits. The military launched a single-payer, government-run system in the 1950s for the dependents of its members. With this as a prototype, the Eisenhower administration began studying the need for health care for senior citizens in the United States. In the 1960s the issue of lowering costs for health care, especially for seniors and the poor, became a political issue which lead to the formation of the Medicare system. During the same time, HMOs declined in popularity as users became dissatisfied with managed care and employers offered a greater variety of insurance options.

The HMO Act

The United States Department of Health and Human Services stepped in to support the sagging HMO market and petitioned Congress to draft a new law. The HMO Act lifted limits that some states had imposed over the years on HMOs. The act also required employers with 25 or more employees who offered health insurance to include HMOs as an option to their employees. Enrollment in HMOs steadily increased throughout the 1970s and 1980s.

Structure of an HMO

An HMO pools groups of doctors in to networks. Patients who use the HMO insurance plan then use doctors within the groups that sign on with the HMO. The patients purchasing health care together from a group of doctors lowers the prices that the individual patients must pay in to the HMO for their health care. The HMO in turn pays the doctors in the groups for their services.

After the HMO Act

By 2001 the enrollment in HMOs hit an all-time high in the United States at 80 million people, some 29 percent of the population. Usage of HMOs varied across the country, with 0 percent of Alaskans using HMOs 44 percent of the population in Massachusetts enrolled, and 53 percent of Californians opting for HMO care. The number of HMOs in the nation declined by 16 percent in the first decade of the 21st Century, but the HMO industry remains strong. President Richard M. Nixon signed in to law the Health Maintenance Organization Act of 1973, or the HMO Act. In the HMO Act, Congress required that employers with 25 or more employees offer them federally certified HMO options if they offered health insurance at all. The HMO Act also provided grants and loans to support the formation of new HMOs or the expansion of existing ones. After the passing of that act, HMOs grew in popularity. But the first HMOs originated earlier in the 20th century.