My Coverage Explained

Today’s HMO: Not Your Grandfather’s HMO (part 1)

Over the years, I am sure you’ve seen news stories about the rising costs of health care. While the government, health insurance and health care companies have all taken steps to control health care costs, it’s becoming a more complex problem to deal with. That’s because of a number of factors including the fact that our population is growing and aging and many of us are taking part in unhealthy lifestyles.

Believe it or not, this isn’t the first time health care costs have been a national issue. In fact, it’s been a case of “same song, different verse” for many years.

While the factors surrounding health care costs have changed throughout the years, one thing remains the same: “managed care” is a proven solution to controlling costs.  

To get a better understanding of what managed care is, let’s take a look at the history of the ideal managed care model, known as the health maintenance organization (HMO).

The Making of HMO: Then and Now
In the Beginning:  As early as 1929, Baylor Hospital in Dallas, Texas, offered a prepaid plan called the “Baylor Plan” to the Dallas Independent School District. Historians disagree as to why exactly this plan came about, but it probably had something to do with the fact that many teachers could not afford hospital bills at this time. The “Baylor Plan” allowed teachers to make pre-payments so that if they did get sick or injured they would get access to hospital care for a set number of days.  Fast-forward a few years later and the State Farm Bureau was added to the plan to cover the many rural farmers in Texas.

(Fun fact: The “Baylor Plan” was the birth of Blue Cross!)1

Other hospitals and clinics out west also began to offer prepaid plans to employers in their area. And 10 years later, doctors started creating “medical groups” to offer prepaid plans for care by a set group of doctors.  

(Here’s another tidbit! The first medical group in Texas became Blue Shield.)  

Over the years, more and more employers started buying these prepaid plans. By the late 1940s, Blue Cross and Blue Shield combined and expanded to cover the most people in managed care plans (24 million members).

In the 1970s: It wasn’t until the 1970s when this “managed care” model became a national standard. The Health Maintenance Organization Act of 1973 provided federal money to promote HMOs to consumers across the nation.  It also required employers to offer an HMO as an option for employees if they provided other types of health care coverage.

Now: More than 80 million people across the country are enrolled in an HMO, and these numbers continue to grow. In fact, we have more members in an HMO plan than in any of our other health care plans combined!

Be sure to circle back next month when I’ll talk about how HMOs work. In the meantime, do you have any questions about HMOs? Let us know in the Comments!


1Lone Star Legacy: The Birth of Group Hospitalization and The Story of Blue Cross and Blue Shield of Texas; Samuel Schaal, copyright 1999.

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