Group model and staff model health plans were pioneered in the first half of the 20^th Century, achieved their first success and visibility with the postwar growth of Kaiser Permanente, and were the inspiration behind the HMO Act of 1972.

Group and staff model health plans share the following characteristics:

• They either own their own hospitals and other brick-and-mortar facilities, or contract with a limited number of facilities
• The plans accept a monthly per-capita fee which resembles insurance in certain ways, but differs in that they are expected to provide the full range of health care services for this amount.  If they are able to do so at less overall cost, the plan is profitable (although not all such plans are for-profit entities.)

 
The primary difference between the two plans is that physicians in a staff-model plan are employees of the plan, whereas physicians in a group model plan contract as a group to provide exclusive services to the plan.  This difference is largely invisible to plan members.

The theoreticians behind the HMO Act believed that staff/group model health plans would proliferate if legislation was passed which gave them special consideration.  They further believed that staff/group model plans would have a financial incentive to provide preventive services in order to avoid further expenses.  (Hence the term “Health Maintenance Organization – HMO.”) 

Other forms of HMO grew more quickly, however, since the legislation also permitted what in today’s terminology might be called “virtual” HMOs made up of independent physicians, hospitals, and other providers linked only by financial relationships.  Since these HMOs didn’t require investment in building or hiring, they were able to take advantage of the law’s provisions to expand rapidly.   These organizations are called “network model” HMOs, and include United Healthcare, Oxford, and Pacificare. 

Kaiser Permanente was formed from the delivery system built to serve Kaiser Aluminum’s industrial workers, originally during the construction of the California Aqueduct and later during the boom years of World War II.  Massive postwar layoffs resulted in excess hospital and staff capacity, so Kaiser began offer these facilities to non-employees on a prepaid basis.

Group Health was formed in the Seattle, WA area in 1947, making it roughly as old as Kaiser Permanente.  Group Health is a cooperative, and is governed by its members. 

Staff and group model HMOs are built around the following assumptions:

• Physicians who provide services solely to one population, and who are not reimbursed on a per-service/per-visit basis, will provide better care. They will not have an incentive to rush patients through a visit, or to provide unnecessary procedures, in order to increase their personal income.  They will therefore provide better-quality care at a lower cost.
• Organizations that are pre-paid to provide all health services to a fixed population will have an incentive to encourage the avoidance of future medical costs.  They will therefore have an incentive to provide wellness and other preventive programs, encourage regular check-ups for ‘health maintenance’ purposes, and provide diagnostic tests and ‘cognitive’ evaluations to find and treat potentially costly conditions early.
• As a result, these HMOs should be able to provide the full range of medical services at a lower total cost, which will make them able to compete successfully against traditional insurance plans.

The resulting business model also assumed that members of these plans would be more satisfied with their care than they would be under a traditional insurance model, encouraging rapid growth and a high rate of customer retention.

Speaks to multiple leverage points:

• Intermediation and Disintermediation in Healthcare
• Staff/group model plans have no financial or administrative intermediaries between the delivery of health and the financing of health
• Healthcare as a public good
• Staff/group model plans are not health ‘insurance’; collectives such as Group Health represent a different form of ‘social contract’ than is typically associated with the healthcare delivery system
• Transparency
• Members of staff/group model plans typically have more predictable out-of-pocket costs
• New Alliances
• New cooperatives or social groups may choose to use the group/staff model plan