Although the general idea of prepaid medical care-precursors to today's HMOs-dates to the early part of the past century, it wasn't until more recent years that managed care caught fire.
The growth has been fueled by businesses and community groups eager to make healthcare available to their workers and members at more-affordable costs.
As healthcare costs skyrocketed in the 1960s, after the birth of Medicare and Medicaid and a movement toward medical specialists, pressure mounted for federal government intervention. So while fending off impeachment, President Nixon signed into law the HMO Act of 1973, which strengthened the concept of prepaid healthcare and encouraged the growth of HMOs through federal funding. By the end of 1978, more than 200 HMOs were spread over 37 states.
The 1980s were a period of spectacular growth for HMOs. The number of plans more than doubled and enrollment increased fourfold, largely in response to employers and consumers seeking access to high quality healthcare at lower prices. Today, 81 million people are enrolled in HMOs, up from 6 million in 1976.
Although HMOs effectively reduced costs, they placed unfamiliar restrictions on Americans, who by and large had been accustomed to unlimited access. The resulting backlash paved the way for the rapid rise of less restrictive PPOs throughout the 1990s. In fact, 1999 marked not only the first year that HMO enrollment declined, but also the first year that PPO enrollment surpassed that of HMOs.
About the same time, it became clear that HMO failures were outpacing start-ups. Mergers accelerated throughout the 1990s, and hospitals and healthcare systems quickly began unloading money-losing health plans, ultimately cutting the number of HMOs by more than 20%.