A health maintenance organization (HMO) provides comprehensive health care to its members on the basis of a prepaid CONTRACT. HMOs function both as INSURANCE companies, collecting periodic premium payments; and as health-care providers, contracting with doctors and hospitals to provide services at predetermined rates. As such the HMO is an example of managed care, the goal of which is high-quality medical care at a reasonable cost. HMOs are financed through a “capitated” system in which care is provided for each member at a fixed rate. In employer-supplied plans, this rate is paid by the employer through a contract with the HMO. Each member of an HMO selects a primary-care physician who is contracted to the plan, provides basic health care, and acts as a “gatekeeper” to specialists who may be consulted only on his or her referral. Sometimes, a small copay, or fee, is charged for each office visit. HMOs traditionally have stressed preventive health care, offering physicals and checkups at little or no extra cost as well as extra health and fitness programs or classes that address a variety of health concerns, such as helping members to lose weight or stop smoking. There are currently several variants of the HMO scheme. In the classic HMO, the company owns most of its own facilities and hires all medical personnel. In a second type, the group-model HMO, the company contracts with a group of doctors who form their own professional CORPORATION. A more flexible variant of the second type, the individual-practice association, allows doctors in individual practices to form corporations with other doctors in their area to provide services to the HMO at predetermined fees. Point-of-service (POS) plans and preferred provider organizations (PPOs) are similar schemes that allow members to see doctors and use medical facilities outside of the network at an additional cost; they sometimes do not require a referral from the primary-care physician to see a specialist. The industrialist Henry J. Kaiser created the prototype of the HMO when he teamed up with Dr. Sidney Garfield to provide a prepaid health plan to Kaiser’s workers at the Grand Coulee Dam construction site in 1938. During World War II they offered a similar plan to 30,000 West Coast shipyard workers and their families. The popularity of the plan encouraged Kaiser and Garfield to offer it to the public after the war. The postwar boom encouraged employers to offer health insurance as part of their EMPLOYEE BENEFITS package. Because of tax incentives (the premiums paid were tax deductible), most employers found traditional insurance supporting fee-per-service health care to be cost-effective. By the 1970s, though, rising health costs were becoming a burden for employers and the government. The Health Maintenance Organization Act of 1973 encouraged the creation of HMOs as a means of controlling medical costs. In the early 1970s, less than 3 percent of Americans were enrolled in an HMO, a number that rose to 30 percent by 1992. In the face of the economic stagnation and INFLATION of the late 1970s, many employers had to reduce benefits in traditional health plans and shift more of the burden of health-care costs to their employees, a situation that continued throughout the 1980s. But neither the increased reliance on HMOs and other types of managed-care plans nor the shifting of more costs to employees did much to rein in the spiraling health-care costs. Not only was there an increasing financial burden on employers, employees, and insurance companies, but an estimated 37 million Americans were uninsured or had lost their health insurance by the early 1990s. Health care became a major issue in the presidential campaign of 1992, but the Clinton administration’s attempts at comprehensive health-care reform ended in a debacle that left managed care as the only viable alternative to the pay-per-service model. During the 1990s, employers moved rapidly away from traditional insurance to various kinds of managed care. The proponents of HMOs, PPOs, and other kinds of managed care stress the plans’ ability to contain costs while providing SERVICES like preventive medicine not usually associated with pay-per-service health care. They make the point that managed care is better able to prevent unnecessary medical procedures and to encourage more cost-effective alternatives to expensive procedures where appropriate. Opponents, on the other hand, have focused on what they see as compromises in the quality of care provided by such plans through practices such as subjecting physicians’ requests for certain medical procedures to review by gatekeepers within the company (who were sometimes alleged not to be qualified to make major medical decisions) or giving doctors financial incentives and bonuses to choose less-expensive options. Many of the more controversial aspects of managedcare plans have been addressed by legislation on the state and federal level and by numerous lawsuits. Some see a trend towards dismantling managed care, although a majority of insured Americans are still in managed-care plans. According to a Kaiser Family Foundation study released in 2002, health costs continue to soar ($1.3 trillion in 2000). The study also showed a shift away from the traditional HMO (28 percent) to PPO networks (48 percent) and found that most people were enrolled in plans offered by for-profit companies. In addition, 91 percent of doctors had a contract with a managed-care provider.