Health Maintenance Organizations

August 9, 1974

Report Outline
Rising Interest in Prepaid Health Care
Growth of U.S. Health Insurance
Probability of HMO Growth in Future
Special Focus

Rising Interest in Prepaid Health Care

Search for Medical Protection at Lower Cost

Americans now spend close to $100 billion a year on medical care. This enormous and increasing expenditure has led to widespread complaints that the public is not getting its money's worth and that the U.S. health care system is in drastic need of overhaul. Much of this criticism focuses on the health insurance industry. Nine of every 10 Americans are protected by one or more forms of private health insurance. However, it is estimated that this insurance covers less than one-third of the total national health bill. Because most insurance plans pay much more for hospitalization than for outpatient care, doctors are encouraged to admit their patients to hospitals, thereby increasing medical costs. And since most plans pay only when the patient sees a doctor or enters a hospital, there is little emphasis on preventive care.

Many persons, in their search for an alternative to increasingly costly and fragmented medical care, have focused their attention on health maintenance organizations. HMOs, as they are called, typically provide comprehensive care for enrolled members on a prepaid basis. For a fixed sum paid at regular intervals, the enrollee is entitled to any or all of the benefits offered without having to pay anything extra out of his own pocket.

While figures vary, the Health Insurance Association estimates that about six million Americans belong to 160 health maintenance organizations. The best known of these group programs are the Kaiser-Permanente plan, with more than 2.6 million members in California, Oregon, Hawaii, Colorado and Ohio; the Health Insurance Plan in New York, with more than 750,000 members; the Group Health Cooperative of Puget Sound in Seattle, with 180,000 members; the Group Health Association of Washington, B.C., with 97,000; and the Labor Health Center in St. Louis, with 40,000.

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