Managed Care - History

History

Paul Starr suggests in his analysis of the American health care system (i.e., The Social Transformation of American Medicine) that Richard Nixon, advised by the "father of Health Maintenance Organizations", Dr. Paul M. Ellwood, Jr., was the first mainstream political leader to take deliberate steps to change American health care from its longstanding not-for-profit business principles into a for-profit model that would be driven by the insurance industry. In 1973, Congress passed the Health Maintenance Organization Act, which encouraged rapid growth of Health Maintenance Organizations (HMOs), the first form of managed care.

Managed care plans are widely credited with subduing medical cost inflation in the late 1980s by reducing unnecessary hospitalizations, forcing providers to discount their rates, and causing the health-care industry to become more efficient and competitive. Managed care plans and strategies proliferated and quickly became nearly ubiquitous in the U.S. However, this rapid growth led to a consumer backlash. Because many managed care health plans are provided by for-profit companies, their cost-control efforts created widespread perception that they were more interested in saving money than providing health care. In a 2004 poll by the Kaiser Family Foundation, a majority of those polled said they believed that managed care decreased the time doctors spend with patients, made it harder for people who are sick to see specialists, and had failed to produce significant health care savings. These public perceptions have been fairly consistent in polling since 1997.

The backlash included vocal critics, including disgruntled patients and consumer-advocacy groups, who argued that managed care plans were controlling costs by denying medically necessary services to patients, even in life-threatening situations, or by providing low-quality care. The volume of criticism led many states to pass laws mandating managed-care standards. Meanwhile, insurers responded to public demands and political pressure by beginning to offer other plan options with more comprehensive care networks—according to one analysis, between the years 1970 and 2005 the share of personal health expenditures paid directly out-of-pocket by U.S. consumers fell from about 40 percent to 15 percent. So although consumers faced rising health insurance premiums over the period, lower out-of-pocket costs likely encouraged consumers to use more health care. Data indicating whether this increase in use was due to voluntary or optional service purchases or the sudden access lower-income citizens had to basic healthcare is not available here at this time.

By the late 1990s, U.S. per capita health care spending began to increase again, peaking around 2002. Despite managed care's mandate to control costs, U.S. healthcare expenditures has continued to outstrip the overall national income, rising about 2.4 percentage points faster than the annual GDP since 1970.

Nevertheless, according to the trade association America's Health Insurance Plans, 90 percent of insured Americans are now enrolled in plans with some form of managed care. The National Directory of Managed Care Organizations, Sixth Edition profiles more than 5,000 plans, including new consumer-driven health plans and health savings accounts.