More than two-thirds of the U.S. population is enrolled in some form of managed care plan. The proportion of workers covered by managed care plans climbed from 58 percent in 1993 to more than 80 percent today. Clearly, managed care plans have become a major factor in the health care marketplace.
Health maintenance organizations (HMO’s) are legally organized entities that share the common characteristics of responsibility for both financing and delivering comprehensive health care services to a defined group of members for a prepaid, fixed fee. HMO’s differ from traditional insurance indemnity plans in that they are both the financing and servicing mechanism. They emphasize preventive medicine and early treatment through prepaid routine physical examinations and diagnostic screening techniques. At the same time, they provide complete hospital and medical care for sickness and injury. The 1973 federal legislation and later amendments in 1976 essentially provided for substantial government funding through grant arrangements to encourage the establishment of health maintenance organizations. The most important support for development of HMO’s came from the law’s requirement that certain employers must offer their employees the option of coverage by an HMO as an alternative to traditional forms of insurance. This requirement ceased on October 1, 1995.
HMO’sare the largest of the managed care approaches in terms of enrollment. About one-fourth of the nation’s population is enrolled in HMO’s. The five commonly recognized HMO models are staff, group, network, individual practice association, and direct contract. The major differences among these models pertain to the relationship between the HMO and its participating physicians. In a staff model, the physicians who serve the HMO members are employed by the HMO and typically are paid on a salaried basis but may also receive bonus or incentive payments that are based on their performance and productivity. At times, the staff model is referred to as a “closed panel” plan because participants are required to obtain all services from a staff employee. In the staff model, the HMO also operates the facilities in which its physicians practice, providing on-site ancillary support services such as radiology, laboratory, and pharmacy services. Hospital care and other services usually are purchased by the HMO through fee-for-service or prepaid contractual arrangements.
In a group model, the HMO contracts with a multispecialty physician group practice to provide all physician services to its members. The physicians in the group practice are employed by the group practice and not by the HMO. Physicians in a group practice share facilities, equipment, medical records, and support staff. The group may contract with the HMO on an all-inclusive capitation basis or on a cost basis.
In the network model, the HMO contracts with more than one group practice to provide physician services. These groups can be either multispecialty or small groups of primary care physicians (i.e., family practice, internal medicine, pediatrics, and obstetrics/ gynecology). Network model HMO’s may be either open or closed panel plans.
The individual practice association (IPA) involves physicians’ organizations comprised of community-based independent physicians, in either solo or group practices, who provide ambulatory services to HMO members. Like the staff model HMO, hospital care and specialty services not available through IPA-participating physicians may be purchased by the HMO from other area providers, either on a prepaid or fee-for-service basis. HMO relationships with an IPA may be established on an exclusive or nonexclusive basis.
The direct contract model HMO’s maintain contractual relationships with individual physicians in contrast to physician groups as in the IPA and network models. Unlike IPA models, direct contract model HMO’s retain most of the financial risk for providing physician services.
Thus, HMO’s are basically prepaid group practice plans that have an agreement with one or more hospitals for admission of enrolled members on a service-type basis, and a group of physicians organized into a cooperative to provide complete office and hospital care. Most HMO’s are organized as group models. HMO’s typically accept enrollment only from clearly designated groups, such as employees. Of any of several employers, or residents of a particular locality, although some may permit enrollment from the general population on an individual basis. The plans are designed to provide an economic incentive to accept focused access to health care providers. HMO’s also facilitated the development of managed care as a significant cost containment concept. Until recent years, most HMO’s operated as nonprofit organizations. The majority of new HMO’s, however, are for-profit organizations. Although many subscribers are covered by HMO’s that have been sponsored by consumer groups, a sizable and growing portion is covered by plans sponsored by insurance companies or Blue Cross/Blue Shield organizations. Physicians, hospitals, and labor unions also sponsor such plans.
Some insurers view HMO’s as competitors and disagree with their sponsorship by insurance companies. Others view them as a viable alternative method of financing and delivering health care that can be offered to employers as one of the products in their portfolio. A few insurers and Blue Cross/Blue Shield plans provide multiple-option plans (i.e., HMO or an indemnity plan with a PPO) under a single medical expense contract. These simplify plan administration and, normally, the entire contract is subject to experience rating.
