Health
Maintenance Organizations (HMOs)
The number of HMOs has grown rapidly in response to increasing health
care costs in recent decades.
History and Development
The purpose of HMOs is to manage health care and its costs through
a program
of prepaid care that emphasizes prevention and early treatment. This
prepayment, which entitles the health care consumer to a wide range
of services,
is referred to as a service-incurred basis. In contrast, traditional
health
insurance coverage is handled on a reimbursement basis, with the insured
or
provider being reimbursed for all or part of medical expenses actually
incurred.
The emphasis on prevention means HMOs cover preventive medicine,
such as routine physical and well-child examinations and diagnostic
screening paid for in advance. Theoretically, the HMOs’ focus
on prevention ultimately
leads to reduced health care costs. At the same time, HMOs provide
for hospital, surgical, and medical treatment when such services
are needed.
One way HMOs differ from traditional health insurance providers
is that
HMOs have a dual function not shared by insurance companies. Under
traditional
arrangements, consumers receive the health care itself from one
group, the medical profession—physicians, hospitals, therapists,
and so
forth—and the financial coverage comes from a separate entity—the
insurance
company. In contrast, an HMO provides both the health care services
and the health care coverage.
These two functions are combined because the HMO is comprised of
a
group of medical practitioners who have contracted to provide specified
services to HMO members at agreed-upon prices. In return, each consumer
who is a member of the HMO agrees to pay the HMO a specified amount
in
advance to cover required hospital and medical services.
