Can Health Maintenance Organizations Be Successful? An Analysis of 14 Federally Qualified "HMOs"

HRD-78-125: Published: Jun 30, 1978. Publicly Released: Jun 30, 1978.

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Health maintenance organizations (HMO) serve as alternatives to traditional fee-for-service health care delivery systems by providing health care to members based on prepaid rates. The Health Maintenance Organization Act of 1973 authorized a program to help develop new HMO's and expand existing ones by providing financial assistance and requiring certain employers to offer HMO's as an option to employees.

A review of the operations of 14 HMO's showed that: the Department of Health, Education, and Welfare (HEW) has not defined specific methods for translating the community rating requirement of the act into subscriber rate structures; some subscriber rates of some organizations did not appear to be equivalent as directed by this requirement; some HMO's may not meet the act's financial soundness requirement; membership is not broadly representative of service areas, including few indigent or elderly persons; none of the 14 HMO's has held open enrollment periods nor has plans to do so until required to, resulting in limited access for high risk individuals; and none has implemented planned quality assurance programs. The dual choice requirement of the act has not had a significant effect on employer's costs. Problems in the HEW implementation of the Act include: fragmented responsibility and uncoordinated efforts in operating the program, insufficient staff with needed expertise, and slow issuance of final regulations and guidelines for implementing and enforcing requirements of the act.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: The Secretary of HEW should: issue final regulations and guidelines and/or criteria for defining how a community rating system should work, for evaluating requests for waiver of the open enrollment requirement, and for governing third-party relationships; develop and disseminate guidelines for designing quality assurance programs and implement procedures for reviewing compliance with quality assurance requirements; and obtain additional staff with needed expertise to effectively administer the program. Congress should defer action on proposals intended to stimulate medicaid and medicare enrollments until HEW demonstrates that it could effectively administer proposed changes and implement effective compliance and on proposals to increase total loans available to HMO's until HEW demonstrates effective administration of the existing loan program. Congress should enact the proposed financial disclosure requirements for third-party relationships and the proposed training program for HMO managers.


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