Managed CareIntroduction Surprisingly, managed care has been around in the United States for almost a century. By 1910, the Western Clinic in Tacoma, Washington, offered medical services through its network of doctors and nurses for a premium of $0.50 per member per month. Nearly one hundred years later, managed care organizations (MCOs) have changed dramatically, increasing in complexity and importance to the U.S. healthcare market. Aggregate revenues of S&P 500 MCOs grew 30 percent in 2006 to $212.4 billion, while earnings per share are expected to increase 15 percent for 2007. The purpose of this document is to Analyze the U.S. managed healthcare industry to understand sources of profitability. History of Managed Care From 1910 to 1970, MCOs represented a small portion of the healthcare landscape (see Exhibit 1 for industry history). As rising medical costs imposed budgetary constraints on government programs, the traditional way of providing healthcare was believed to be financially wasteful as healthcare providers (doctors, hospitals, etc.) had no incentive to keep costs to a minimum . In 1973, the United States Congress passed the Health Maintenance Organization (HMO) Act, which required all employers with more than 25 employees to offer two federally certified HMO plans for their employees. Unfortunately for the industry, obtaining federal certification has not been an easy process. Rigorous requirements related to minimum benefit standards, quality assurance, and financial stability have made it difficult for HMOs to comply. However, during the Carter and Reagan administrations (early 1980s), issuing regulations became a priority and growth followed. Two other elements contributed significantly to consumers indu...... their medical care,” said Prosser, a consultant with Mercer Health and Benefits. Revocation of benefits: even if employers who want to remain competitive in the market for top talent offers attractive health insurance packages, costs have already become too high for some employers As a result, there is a decrease in the number of employers offering health insurance plans “Year-over-year increases in rates premiums have forced some employers to forgo health coverage altogether. Of the companies surveyed, 60 percent offer insurance to employees, down from 69 percent in 2000. However, managed care companies have simply eliminated customers less profitable to their base and continue to make a profit were health care not seen as a “core” employee benefit, this decline in participation would likely be greater.