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.

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