President Nixon signed the Health Maintenance Organization Act (HMO Act) on December 29, 1973. This law established the framework for the development of an alternative system of paid health care. HMOs are medical insurance organizations that are specific to providing medical services for an annual fixed fee.
Prior to the adoption of this act, the federal health care system had not attempted to interfere with the existing system of medical services. For instance, Medicaid and Medicare were targeted at the purchase of health care services that were paid for on a lump sum basis.
HMO Conception was initially proposed by Dr. Paul M. Ellwood, who suggested that a health care organization would receive a fixed periodic fee for its services and would provide a relatively wide range of services. This conception was the foundation of the HMO Act of 1973, which was adopted after extensive discussions in Congress. This law has been implemented for a long period and has subsequently been amended repeatedly between 1976 and 1996.
The provided grants and loans were supporting HMOs for launch and development and repealed specific restrictive state laws regarding federal HMO’s.
HMOs had to be federally accredited and required to provide a comprehensive spectrum of health care services, including medical treatment, diagnostic and therapeutic services, crisis intervention mental health services, home health services, preventive health services. They were required to have open enrollment over 30 days or more per year.
The act defined two types of organizational entities: a medical group and an individual practice association. The difference was that the medical group was required to switch more than 50 percent of its services to the prepayment plan in order to receive the federal certification. At the same time, the individual practice association was allowed to continue most of its services on a fee-for-service basis and still qualify for national certification.
According to the Act, employers with twenty-five or more employees were required to provide the option of membership in qualified HMO. This provision was called mandatory dual choice and was of paramount significance.
According to this term, the employee could choose between the standard health plan and the managed care system of the HMO Act. Thus, the possibilities of selecting the health insurance system for the employees were increased, and novice HMOs were getting access to a wide range of patients.
According to the plans of the legislator, the main profit of the act was to control the cost of medical services, to assure their quality, and to improve the distribution of health resources. The prepayment basis and preventive care system allowed the patient not to be concerned about the price of services included in the HMO’s package. The employee could, therefore, rely on a stable prepaid health insurance system due to the mandatory dual choice section.
The act specifically states that both the medical group and the individual practice association are organizations composed of health professionals licensed to practice medicine. In addition, all HMOs were subjected to the federal certification procedure, and they were supposed to have better health personnel selection.
Finally, it was expected that the prepaid HMO system would provide the necessary facilitation, equipment, medical personnel, and other conditions for the delivery of health services that were lacking in rural areas. The HMO Act did not achieve all the objectives intended for. Nevertheless, certain HMOs such as Kaiser Permanente have achieved significant success.