Skip to content

What happened with HMOs?

Back in the 1970s, I remember occasionally reading a newspaper or magazine article about this mysterious thing called an HMO—a “health maintenance organization.”

The idea was that the medical system as we knew it (you go to the doctor when you’re sick and pay some money, or you go to the hospital if you’re in really bad shape and pay some money) had a problem because it gave doctors and hospitals a motivation for people to be sick: as it’s sometimes said today, “sick care,” not “health care.” The idea is not that health care providers would want people to be sick, but that they’d have no economic incentive to increase the general health in the population. This seemed in contradiction to Deming’s principles of quality control, in which the goal should be to improve the system rather than to react to local problems.

In contract, the way HMOs work is that you pay them a constant fee every month, whether or not you go to the doctor. So they are motivated to keep you healthy, not sick. Sounds like a great idea.

But something happened between 1978 and today. Now we all have HMOs, but there’s even more concerned about screwed-up economic motivations in the health care system. This time the concern is not that they want us to go to the doctor too much, it’s that they want to perform too many tests on us and overcharge us for ambulance rides, hospital stays, aspirins they give us while we’re in the ambulance or the hospital, etc. I guess this arises from the fact that much of the profit for HMOs is coming not from our monthly fees but from those extra charges.

What’s my point in writing about this? I’m not an expert in health care research, so I don’t have much to add in that direction (see for example . Rather, I’m coming at this as an outsider.

The simplest message here is: “Ha! Unexpected consequences!” Or, to get more granular, you could say that as long as there’s loose money floating around, there will be operators figuring out how to grab it.

Still, it’s interesting to me how HMOs solved a problem of counterproductive incentives but then this led to a new problem of counterproductive incentives. And I don’t think it’s inevitable, as there are lots of other countries that don’t have this particular set of problems with their health care systems.

Leave a Reply