Health Maintenance Organization Act of 1973 eText - Primary Source

Primary Source

Dr. Eugene Balthazar examines eight-year-old Charles Ames, who fell from his bicycle. Congress passed the Health Maintenance Organization Act of 1973 to make medical and health care more available and affordable to the average American. © BETTMANN/CORBIS. Dr. Eugene Balthazar examines eight-year-old Charles Ames, who fell from his bicycle. Congress passed the Health Maintenance Organization Act of 1973 to make medical and health care more available and affordable to the average American. © BETTMANN/CORBIS. REPRODUCED BY PERMISSION. Published by Gale Cengage © BETTMANN/CORBIS. REPRODUCED BY PERMISSION.


By: Richard Nixon

Date: December 29, 1973

Source: Health Maintenance Organization Act of 1973. U.S. Public Law 93–222. 93rd Cong. 1st sess. December 29, 1973. Reprinted in United States Statutes at Large. Washington, D.C.: U.S. Government Printing Office, 1974.

About the Author: Richard Milhous Nixon (1913–1994) was born in Yorba Linda, California, and received a law degree in 1937 from Duke University. In 1946, he won election to the U.S. House of Representatives, and in 1952 he joined Dwight D. Eisenhower as candidate for vice president. He won the 1968 presidential election but on August 8, 1974, he became the only U.S. president to resign.


Medical costs increased during the 1970s as they had in the previous decade. In 1970, Americans spent $74.9 billion for medical care, a figure that more than doubled to $212 billion in 1979. By then, medical costs totaled nearly 10 percent of gross domestic product (the total value of goods and services produced in the United States). Physician fees rose nearly 10 percent in 1977 alone, an increase 50 percent greater than the increase in prices for nonmedical goods and services. In 1974, orthopedic surgeons averaged $62,410 a year, and the next year the median salary for physicians was $47,520, more than triple the median household income of Americans. These costs led 75 percent of Americans in 1970 to fear that medical care in the United States was in crisis.

The rise in costs stemmed partly from Congress's coverage in 1965 of all Americans sixty-five and older (Medicare) and in 1966 of all Americans who fell below an income threshold (Medicaid). In 1968, President Lyndon Baines Johnson estimated that Medicare and Medicaid covered more than 25 million Americans. During the 1960s and 1970s, the aged and poor, who could not have afforded treatment without Medicare and Medicaid but who needed a disproportionate share of medical care, flocked to physicians and hospitals. This rise in the demand for care increased its price, as economic theory would predict.

Another culprit was what one might call intensive medicine during the 1970s. Fearful of lawsuits, physicians ordered an array of tests on patients in an effort to demonstrate the thoroughness of treatment. The additional tests added cost but not quality to treatment. At the same time, patients who had doubts about the quality of their care visited specialists, who charged higher fees than did general practitioners. The consultation of specialists did not guarantee higher quality care, only higher costs.


Americans could contain medical costs in two ways. First, the nation could adopt a government-sponsored program that covered everyone. In this case, government would be the sole payer for medical services and could cap fees. Lyndon Johnson, president from 1963 to 1969, had tried to cover all Americans in increments, but it is unclear that Johnson would have favored caps on medical fees. Without national heath care, physicians could drop patients under plans that paid too little, as they did when Congress capped Medicaid payments in 1969.

The absence of government coverage for everyone left private insurers, the second option, alone in their attempt to slow the growth of medical costs. In response, they created health maintenance organizations (HMOs). President Richard M. Nixon persuaded Congress in 1973 to pass the HMO Act, which defined an HMO and its responsibilities. This excerpt states that a person or a group of people (usually employees in business, government, or nonprofits) may buy into an HMO by prepaying for coverage in fixed amounts at specified intervals. An HMO must provide coverage at a group rate that is cheaper than an individual rate. An HMO may provide levels of coverage dependent on member payments.

An HMO purchases medical coverage for its members by contracting physicians and hospitals to provide medical care at a lower rate, in the form of a salary, than they might charge in a free market. An HMO substitutes a salary for fee for service. The HMO Act mandated that HMOs set aside at least thirty days each year when new members may enroll. Once a person bought into an HMO, it cannot drop him should his health deteriorate.

By 1979 five percent (roughly 9 million) of Americans were in an HMO. By 1990 the number had increased to 36 million. In 1987 27 percent of U.S. employees participated in an employer-sponsored HMO. By 1996 the percentage reached 74.

No less important was the effect on government-sponsored health care. The Republican Party had been the opponent of government-sponsored coverage, yet in

1973 Republican President Richard M. Nixon signaled to Congress his willingness to sign legislation that would extend government-sponsored health coverage to all Americans. With support from the liberal wing of the Democratic Party, Nixon might have achieved the goal that had eluded Democratic presidents Harry S. Truman and Lyndon Johnson. The HMO Act killed this ambition by allowing conservatives to claim that HMOs could contain health-care costs better than could government-sponsored coverage.

Primary Source: Health Maintenance Organization Act of 1973 [excerpt]

SYNOPSIS: This excerpt defines an HMO and its responsibilities. It mandates that HMOs set aside at least thirty days each year when new members may enroll. Once a person buys into an HMO, it cannot drop him should his health deteriorate.

Title XIII—Health Maintenance Organizations

Requirements for Health Maintenance Organizations

Sec. 1301. (a) For purposes of this title, the term 'health maintenance organization' means a legal entity which (1) provides basic and supplemental health services to its members in the manner prescribed by subsection (b), and (2) is organized and operated in the manner prescribed by subsection (c).

(b) A health maintenance organization shall provide, without limitations as to time or cost other than those prescribed by or under this title, basic and supplemental health services to its members in the following manner:

  1. Each member is to be provided basic health services for a basic health services payment which (A) is to be paid on a periodic basis without regard to the dates health services (within the basic health services) are provided; (B) is fixed without regard to the frequency, extent, or kind of health service (within the basic health services) actually furnished; (C) is fixed under a community rating system; and (D) may be supplemented by additional nominal payments which may be required for the provision of specific services (within the basic health services), except that such payments may not be required where or in such a manner that they serve (as determined under regulations of the Secretary) as a barrier to the delivery of health services. Such additional nominal payments shall be fixed in accordance with the regulations of the Secretary.
  2. For such payment or payments (hereinafter in this title referred to as 'supplemental health services payments') as the health maintenance organization may require in addition to the basic health services payment, the organization shall provide to each of its members each health service (A) which is included in supplemental health services (as defined in section 1302(2)), (B) for which the required health manpower are available in the area served by the organization, and (C) for the provision of which the member has contracted with the organization. Supplemental health services payments which are fixed on a prepayment basis shall be fixed under a community rating system.
  3. The services of health professionals which are provided as basic health services shall be provided through health professionals who are members of the staff of the health maintenance organization or through a medical group (or groups) or individual practice association (or associations), except that this paragraph shall not apply in the case of (A) health professionals' services which the organization determines, in conformity with regulations of the Secretary, are unusual or infrequently used, or (B) any basic health service provided a member of the health maintenance organization other than by such a health professional because it was medically necessary that the service be provided to the member before he could have it provided by such a health professional. For purposes of this paragraph, the term 'health professionals' means physicians, dentists, nurses, podiatrists, optometrists, and such other individuals engaged in the delivery of health services as the Secretary may by regulation designate.
  4. Basic health services (and supplemental health services in the case of the members who have contracted therefor) shall within the area served by the health maintenance organization be available and accessible to each of its members promptly as appropriate and in a manner which assures continuity, and when medically necessary be available and accessible twenty-four hours a day and seven days a week. A member of a health maintenance organization shall be reimbursed by the organization for his expenses in securing basic or supplemental health services other than through the organization if it was medically necessary that the services be provided before he could secure them through the organization.

(c) Each health maintenance organization shall—

  1. have a fiscally sound operation and adequate provision against the risk of insolvency which is satisfactory to the Secretary;
  2. assume full financial risk on a prospective basis for the provision of basic health services, except that a health maintenance organization may obtain insurance or make other arrangements (A) for the cost of providing to any member basic health services the aggregate value of which exceeds $5,000 in any year, (B) for the cost of basic health services provided to its members other than through the organization because medical necessity required their provision before they could be secured through the organization, and (C) for not more than 90 per centum of the amount by which its costs for any of its fiscal years exceed 115 per centum of its income for such fiscal year;
  3. enroll persons who are broadly representative of the various age, social, and income groups within the area it serves, except that in the case of a health maintenance organization which has a medically undeserved population located (in whole or in part) in the area it serves, not more than 75 per centum of the members of that organization may be enrolled from the medically undeserved population unless the area in which such population resides is also a rural area (as designated by the Secretary);
  4. have an open enrollment period of not less than thirty days at least once during each consecutive twelve-month period during which enrollment period it accepts, up to its capacity, individuals in the order in which they apply for enrollment, except that if the organization demonstrates to the satisfaction of the Secretary that—
    1. it has enrolled, or will be compelled to enroll, a disproportionate number of individuals who are likely to utilize its services more often than an actuarially determined average (as determined under regulations of the Secretary)

      and enrollment during an open enrollment period of an additional number of such individuals will jeopardize its economic viability, or

    2. if it maintained an open enrollment period it would not be able to comply with the requirements of paragraph (3),

    the Secretary may waive compliance by the organization with the open enrollment requirement of this paragraph for not more than three consecutive twelve-month periods and may provide additional waivers to that organization if it makes the demonstration required by subparagraph (A) or (B);

  5. not expel or refuse to re-enroll any member because of his health status or his requirements for health services;
  6. be organized in such a manner that assures that (A) at least one-third of the membership of the policymaking body of the health maintenance organization will be members of the organization, and (B) there will be equitable representation on such body of members from medically undeserved populations served by the organization;
  7. be organized in such a manner that provides meaningful procedures for hearing and resolving grievances between the health maintenance organization (including the medical group or groups and other health delivery entities providing health services for the organization) and the members of the organization;
  8. have organizational arrangements, established in accordance with regulations of the Secretary, for an ongoing quality assurance program for its health services which program (A) stresses health outcomes, and (B) provides review by physicians and other health professionals of the process followed in the provision of health services;
  9. provide medical social services for its members and encourage and actively provide for its members health education services, education in the appropriate use of health services, and education in the contribution each member can make to the maintenance of his own health;
  10. provide, or make arrangements for, continuing education for its health professional staff; and
  11. provide, in accordance with regulations of the Secretary (including safeguards concerning the confidentiality of the doctor-patient relationship), an effective procedure for developing, compiling, evaluating, and reporting to the Secretary, statistics and other information (which the Secretary shall publish and disseminate on an annual basis and which the health maintenance organization shall disclose, in a manner acceptable to the Secretary, to its members and the general public) relating to (A) the cost of its operations, (B) the patterns of utilization of its services, (C) the availability, accessibility, and acceptability of its services, (D) to the extent practical, developments in the health status of its members, and (E) such other matters as the Secretary may require.

Further Resources


Starr, Paul. The Social Transformation of American Medicine. New York: Basic Books, 1982.

Vahovich, Samuel. Profile of Medical Practice. Chicago: American Medical Association, 1973.


"A Group-Health Plan That Has Come of Age." U.S. News & World Report, October 8, 1979, 79.

"Health Costs: What Limit?" Time, May 28, 1979, 60–68.


Health Maintenance Organization Definition. Available online at; website home page: (accessed February 5, 2003).

What Is a Health Maintenance Organization? Available online at (accessed February 5, 2003).