The Health Maintenance Organization in the United States Health Care Sector

Abstract

Health care is an important consideration that affects every person. Good health enables us to work and to play and to live our lives in comfort and ease. However, the economics of health care are a serious consideration in the face of skyrocketing costs and significant trends towards managed care. This report will present a broad overview of the health sector in the United States, focusing on the health maintenance organization (HMO) and some of the factors that have contributed to it's success. There are two basic types of health care systems- socialized and decentralized. The United States has taken the second approach, keeping health care largely in the private sector. Physicians, nurses and other medical practitioners have typically worked on a fee-for-service basis. However, medical costs increased such that fewer U.S. citizens were able to afford health care, spurring the HMO Act of 1973, enacted by the Nixon Administration. This served to establish the health maintenance organization, HMO, as a legitimate, government-supported alternative to the standard health care delivery system. An HMO provides, on a prepaid basis, hospital and physician services which are either contracted out or owned by the HMO company. The HMO Act was written to free HMOs from restrictive state laws. It also provided loans and grants in order to foster HMO growth and development. HMOs had the potential to provide quality care at controlled costs, and to provide care in rural areas. The HMO Act has been amended several times since it's origina11973 passage in order to lift further regulations and impediments hampering their competition in the marketplace. Today, HMOs have become a significant portion of the health care sector. As of 1995, there were 630 HMOs servicing nearly 60 million members. This accounts for over 20 percent of the nation's population. The success of the HMO has been extensively studied. Several studies are presented in this report, all of which have concluded that HMOs have been able to cut costs from 10 to 40 percent. These savings are largely the result of HMO management techniques, which create incentives for lower utilization rates of hospital beds, reduction of unnecessary procedures and more efficient practices. One lingering concern of HMOs is the quality of care that may be affected by aggressive cost cutting strategies. This report also examines several of the cases that have studied this matter. They have concluded that patients in an HMO plan experience the same levels of physiologic health as patients in a fee-for-service plan. This indicates that the quality of care from an HMO is comparable to that of fee-for-service. HMOs must market themselves in a competitive market. They recognize that providing quality and customer satisfaction will lead to subsequent word-of-mouth of a solid reputation, which is their most effective marketing tool. Their first priority of course is providing quality care which means having quality physicians. HMOs utilize stringent requirements during the application process and have been very selective. HMOs maintain customer satisfaction by spending resources on customer relations representatives and prompt handing of problems and complaints. HMOs have experienced unprecedented success in metropolitan markets, with approximately 90% of enrollees coming from such areas. In order to understand this success, the metropolitan cities of Chicago, Detroit and Philadelphia are studied. The demographics, populations changes, income, geographic distnbution and health care resources are examined for each area. Medicare and Medicaid HMOs have become a significant portion of the HMO community. Utilized for their cost-cutting advantages, an increasing percentage of the two programs have become enrolled in HMOs. Finally, although HMOs have undoubtedly been successful in their original task of controlling costs while providing quality care, health care costs continue to increase unabated. This was the source for the debate in health care reform of the mid 1990s. However, the Clinton Administration's proposed Health Security Act of 1993 did not succeed. As the costs of medical care continue to increase, and less are able to afford health care, it is inevitable that HMOs will continue to play a more prominent role of shaping the health care sector in this country, as well as to shape health care policy of the future.