Managed Care and the HMO

8 Problems with Our Health Care System #3

Managed Care began with the most idealistic of origins. It was seen as a way to reduce the cost of health care while simultaneously increasing the quality of the health care delivered. It was to be accomplished by the formation of the group practice. Doctors would join the practice and would be paid a salary. Rather than pay a fee for each service, the customers would pay a regular fixed fee for health care whenever they needed it. Despite the opposition of many doctors, group practices became successful where implemented. Certainly the customers loved the practices and the managed care provided.

A prominent advocate for group practices was a California doctor named Paul Ellwood. He believed that patients at a group practice received better preventive care and that when sick, they were treated more effectively. He believed that managed care was a perfect market based system that would save our health care system and mitigate calls for universal health insurance from the government. He found willing ears in the Nixon Administration and rechristened his the group practice as a Health Maintenance Organization (HMO). The HMO Act of 1973 was passed allowing for the creation of HMOs.

Unfortunately, the Republicans decided to monkey with the details and the HMOs, which would rise to prominence in the 1980s and explode in the 1990s, would have little resemblance to the group practices upon which they were based. As created by for-profit insurance companies, the HMO would not consist of true group practices with doctors under one roof. Instead, they would still practice managed care, but they would form networks of independent doctors.

Insurance companies measure something they call their "Medical Loss Ratio". It is the percentage of revenue spent on health care versus their overhead, marketing and profits. The "loss" is the health care. Under the old style group practices the ratio was between 85 and 90 percent. Under the new HMOs, the margin dropped to between 70 and 80 percent. Quality of care was no longer a focus.

Under a group practice, if a doctor ordered a procedure or a test, you knew it would be covered. The medical decisions were in the hands of the doctor. Under an HMO, a doctor often needs permission from the insurance company to perform a procedure. At a group practice, a doctor worked on salary and the only incentive was to deliver quality health care at an affordable cost. HMOs reward the doctors in their networks for keeping costs down. The emphasis is keeping costs low, not on delivering quality health care. Needless to say, many, many people hate their HMOs.

Managed care is yet another good idea that has been screwed up by greedy corporations.

Source - Sick: The Untold Story of America's Health Care Crisis --- and the People Who Pay the Price by Jonathan Cohn