Health maintenance organizations, commonly referred to as HMOs, represent one increasingly popular form of managed health care. One of the goals of managed health care is to help contain the skyrocketing cost of health care in the United States. HMOs aim to deliver health care services for a less expensive prepaid fee by coordinating all medical treatment and eliminating any unnecessary or inappropriate services.

While health maintenance organizations are being heralded as a new alternative to traditional fee-for-service insurance coverage, the idea of prepaid health care can be traced to the beginning of the 20th century, when lumbermen and mill owners organized their own prepaid group coverage. Their efforts resulted in the establishment of the Western Clinic in Tacoma, Washington, which, for a reasonable fixed price per month, provided full health care benefits!

In the 1930s and 1940s, industrialist Henry Kaiser formed an association with Dr. Sidney Garfield to provide prepaid health care coverage to Kaiser shipbuilding and contruction employees and their families. In 1945, he established the Kaiser Medical Care Program, which was offered to the community at large and which became the predecessor of the Kaiser Foundation Health Plans.

The idea and implementation of prepaid health plans grew slowly but steadily, in spite of competition from traditional insurance companies which supported physician and hospital independence and third-party payment and in spite of the opposition of most local medical communities. By 1970, many prepaid health plans existed nation wide.

Prepaid health care received a solid boost and an official name in 1973 when the federal Health Maintenance Act was passed. Enacted by the Nixon Administration as a means to improve the health care system without having to move toward national health insurance, the Health Maintenance Act served several purposes:

    To standardize, organize and offer financial support for the development of HMOs;
    To give government approval to those HMOs which adhered to government regulations; and
    To require employers to offer the option of HMO coverage to their employees.

Subsequent amendments have been passed, giving greater flexibility in the definitions of and requirements for health maintenance organizations. All the acts, however, have been based on the philosophy that HMOs encourage free-market competition and thus help decrease health care costs without the need for government intervention.