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See Also

See Also:

Health insurance;

Law and mental health;

Mental health parity.

Psychology & Behavioral Health

Health maintenance organizations (HMOs)

by Sharon Wallace Stark

Date: Twentieth century forward

Type of psychology: Psychopathology

Health maintenance organizations (HMOs) are a type of managed care health insurance plan that bring together a wide range of health services into one organization and provide health care to subscribers for a fixed, prepaid fee.

Key Concepts

  • Cost containment

  • Health care

  • Member

  • Network

  • Prepaid

  • Primary care provider

Introduction

From the early part of the twentieth century until the 1960s, many employers provided prepaid, limited health insurance plans. Their popularity waned considerably in the late 1960s, however, when health care costs soared and pressure grew for the government to intervene. In 1973, as part of a health care cost containment initiative, the US Congress passed the Health Maintenance Organization Act in an effort to improve the efficiency of the national health care system. This act provided grants and loans to establish or expand on federally certified HMOs and removed legal barriers that had previously inhibited their development. It required employers with twenty-five or more employees to offer federally certified HMO plans. In the 1980s, the number of HMOs in the United States doubled. By 1996, almost 25 percent of the US populace was enrolled in an HMO, and by 2001 this number had peaked at almost 30 percent. By 2010, rates of HMO enrollment in the United States varied widely between geographic regions, with higher enrollment in the West (33 percent) and Northeast (26 percent) and lower enrollment in the South (12 percent) and Midwest (11 percent), where a majority of covered workers are enrolled in preferred provider organizations (PPOs).

HMOs contract with health care providers who become part of a network that provides health services to HMO patient members at a fixed, prepaid fee regardless of actual medical costs or the number of times they are seen in the office. In return, the HMO ensures a steady flow of patients to the providers. The major goal of HMOs is to provide quality health care while reducing health care costs and administrative complexities. The premise is that because of the reduction of out-of-pocket expenses, HMO patient members will seek medical treatment more routinely. As such, a focus on preventive care will identify health problems before they worsen and their treatment becomes more unmanageable and expensive.

Additionally, utilization management controls, such as requiring referrals from a primary care provider for medical procedures and care by a medical specialist, reduce the number of specialists required and limit unnecessary tests and procedures. HMOs were largely designed to replace fee-for-service medical care, which many believed incentivized doctors to order and perform unnecessary tests and procedures.

HMO subscribers must receive health care services from doctors, hospitals, and other health care professionals that are within the HMO network. Because managed care does not allow free choice in selecting health care providers that are not within a given network, however, the system is looked upon by some as limiting access to specialized care and treatment at the cost of patient well-being.

Patient members choose a primary care provider (PCP) from the HMO member providers. The PCP provides basic medical care, authorizes access to other medical services, and refers patients to health care specialists. Patient members also pay a nominal copayment for office visits. Some HMOs do not require a referral before seeing a specialist. There is usually no lifetime limit on benefits as there are with other types of medical insurance. Experimental and nonnecessary elective treatments are rarely covered by HMOs.

Mental Health Care

Outpatient mental health services are often limited in HMO plans. In fact, many provisions for long-term mental health needs are minimal. Many HMO plans increase a patient's copay for extended mental health treatment. For example, a plan may require no copay for the first five mental health visits, a five-dollar copay for mental health visits six through ten, and a fifteen-dollar copay for additional visits. There may be no copay, however, for inpatient mental health treatment because such treatment often focuses on crisis intervention and short-term therapy. In addition, many HMOs depend on the primary care provider to treat mental health disorders instead of referring patients to licensed mental health care providers or psychiatrists. Treatment for addiction or substance abuse services is also limited.

The Mental Health Parity Act of 1996 began the process of ending the practice of providing less insurance coverage for mental than for medical illnesses or surgical procedures. However, it only pertained to plans that already covered mental health care, and although mental illnesses were covered, it did not include coverage of treatment for substance abuse or addiction. The Mental Health Parity and Addiction Equity Act of 2008 requires that mental health and addiction treatment copayments and treatment limitations could not be any more restrictive than medical treatment copayments and treatment limitations. This legislation also incorporates methods of oversight to evaluate for discrimination against specific conditions. The Patient Protection and Affordable Care Act of 2010 (PPACA) required insurance providers to include certain treatment services for mental health and substanceabuse disorders in their benefits packages; created incentives to coordinate primary care, mental health, and addiction services through federal grants; and prohibited insurers from denying coverage to subscribers with preexisting conditions, including chronic mental health conditions such as schizophrenia.

Bibliography

1 

Culyer, A. J. Encyclopedia of Health Economics. Burlington: Elsevier Science, 2014. Print.

2 

Kongstvedt, Peter. Managed Care: What It Is and How It Works. Sudsbury: Jones, 2008. Print.

3 

Marcinko, David, and Hope Hedico. Dictionary of Health Insurance and Managed Care. New York: Springer, 2006. Print.

4 

Pearlman, S. A. “The Patient Protection and Affordable Care Act: Impact on Mental Health Services Demand and Provider Availability.” Journal of the American Psychiatric Nurses Association 19.6 (2013): 327–34. Print.

5 

Sederer, Lloyd I. Family Guide to Mental Health Care. New York: Norton, 2013. Print.

Citation Types

Type
Format
MLA 9th
Stark, Sharon Wallace. "Health Maintenance Organizations (HMOs)." Psychology & Behavioral Health, edited by Paul Moglia, Salem Press, 2015. Salem Online, online.salempress.com/articleDetails.do?articleName=PBH_0294.
APA 7th
Stark, S. W. (2015). Health maintenance organizations (HMOs). In P. Moglia (Ed.), Psychology & Behavioral Health. Salem Press. online.salempress.com.
CMOS 17th
Stark, Sharon Wallace. "Health Maintenance Organizations (HMOs)." Edited by Paul Moglia. Psychology & Behavioral Health. Hackensack: Salem Press, 2015. Accessed September 17, 2025. online.salempress.com.