HMOs' Rise Driven by Government, Not Market

Dissatisfaction with HMOs has led some to call for increased regulation of the HMO industry. Government officials express concern for patient protection and access to health care. Yet government action did much to encourage the spread of HMOs'and government action continues to steer people into HMOs.
HMO Act of 1973
Unbeknownst to most, Congress has essentially mandated managed care for everyone. In response to escalating costs in the Medicaid and Medicare programs, Congress looked to HMOs for assistance.
In 1973, it passed the HMO Act which offered government subsidies to HMOs and gave nonlicensed HMO executives the power to challenge the medical judgment of licensed physicians.
The Act also mandated that all businesses with more than 25 employees offer HMOs as a health care option. Until then, most employers, fearing increased costs and utilization, had avoided HMOs.
States Force People Into Managed Care
During the early 1980's, Congress began allowing states, through Medicaid Section 1115 waivers, to herd Medicaid recipients against their will into managed care programs. By June 1996, over 40 percent of Medicaid beneficiaries were enrolled in managed care plans.
The Department of Health and Human Services (HHS) touts the waivers as providing "states with the much-needed flexibility to develop innovative solutions." That flexibility, however, violates federal Medicaid law, which prohibits limits on treatment or choice of doctor.
HMOs Gain Solid Ground
In 1995, Congress repealed the employer mandate, but by then, HMOs had already gained a solid position in the medical marketplace. According to the Health Resources and Services Administration, the percentage of working Americans with private insurance enrolled in managed care rose from 29 percent in 1988 to over 50 percent in 1997.
Who Benefits From HMOs?
By mandating managed care for some patient groups, and by passing legislation allowing HMOs to deny care, the government has assured maximum profit for HMOs, with little risk. Public officials profit politically by promising "free" health care. Managed care allows politicians to promise health care without actually guaranteeing access to it.
Americans are rightly concerned about managed care. However, in public policy as in medicine, proper diagnosis precedes proper treatment. Proposals to increase the regulation of HMOs stem from an incorrect diagnosis. Government- directed managed care is not the cure; individual choice is.
This article was originally published in the November/December 1998 issue of Intellectual Ammunition, published by the Heartland Institute, and later published by Health Freedom Watch, a publication of the Institute for Health Freedom.