HMO's are a major form of employer-based health coverage.
A health maintenance organization, or HMO, is a form of prepaid health plan offered by employers to their employees. An HMO is an example of a managed-care model of health care delivery that has become the dominant method of delivery because of its potential to reduce costs and increase efficiency. The HMO Act of 1973 provided incentives to employers to offer HMO plans as an alternative to indemnity insurance.
Managed-Care Models
"Managed care" refers to organizations that provide both payment for health care providers and a system for delivering health care services. A key component of managed care is "gatekeeping." It means a patient can access only certain types of services from their primary provider, and can see a specialist or obtain rehabilitative services only if referred by the primary provider. This allows employers to save money by ensuring that only patients who are deemed to really need more expensive care will have access to it.
History
On Dec. 29, 1973, President Richard Nixon signed into law the HMO Act of 1973. The bill represented a monumental change in the way the federal government regulated health policies. Until then, the federal government directed legislation at the purchase of health care services, such as Medicare and Medicaid, or improving the distribution of health care services and health care facilities and resources. The HMO Act of 1973 was directed at changing the system of health care delivery.
Features
The HMO Act of 1973 specified the basic health services an HMO had to provide and supplemental services it could choose to provide. Basically, employers prepay a flat fee to the HMO, and employees receive services as they need them. The capitation payment provides the patient a certain amount of money that can be used for services over a period of time, either monthly or annually. If the employee uses fewer services, the provider keeps the difference. But the provider must absorb the cost if the employee uses more services.
Benefits
HMO health plans are enticing to employers because they know in advance what the cost of providing health insurance to employees will be. They are also appealing because the number of patients is fixed, and revenue is obtained by providing incentives for cost control by withholding services deemed unnecessary.
Evolution
Several different models of HMO's have emerged since the HMO Act of 1973 was passed. A staff model HMO refers to when physicians are employed by the HMO and are compensated via salary. A prepaid group practice model HMO indicates a service in which physicians are employees of an independent group that is contracted to provide services. In a network HMO, an HMO contracts two or more group practices to provide services.
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