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HMOs: Health Care Cost Containment

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HMOs: Health Care Cost Containment

December 16, 2008

Health Maintenance Organizations (HMOs) are a form of insurance-financed managed care. In a managed care system, a health insurance plan pays a closed network of doctors and hospitals an annual rate for each enrollee regardless of how much health care that enrollee uses. If a group of enrollees uses less health care than the insurance company paid for in advance, the doctors and hospitals keep the difference as a bonus. This system is called "capitation." A primary care doctor typically acts as a gatekeeper for an HMO enrollee and refers him to a closed network of specialists when necessary. Theoretically, managed care should keep health care costs down by providing doctors with incentives to keep their patients healthy and avoid expensive hospital care. HMOs became very popular in the late 1980s and throughout the 1990s as a cost-containment method, but in recent years, patients began to revolt against them. Some patients didn't like the closed provider network, and others questioned their physician's and insurance companies' motives when they were denied care. Almost 64.5 million people belonged to an HMO as of July 2008, according to StateHealthFacts.org, a website sponsored by the Henry J. Kaiser Family Foundation. This is their most recent estimate as of August 2009. Updated February 2010

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