Why do we have co-pays?
If you’ve ever been covered by a PPO or HMO for your health insurance you are familiar with co-pays. Charged on everything from doctor visits to ER visits and sometimes even tests like a CT scan, this is money you are typically out of pocket upfront for those services. But how did they start?
Many years ago (wow, about 30 years now!) a company was formed called US Healthcare. They were the first HMO, and they had just a small office in Willow Grove, PA. I grew up in Willow Grove and ultimately ended up working a while for US Healthcare.
Back then we only covered a region of PA/NJ, but they wanted to expand. Day after day I was on the phone with doctor’s offices, extolling the virtues of being a provider. After the law was passed that if a company offered traditional insurance they must also offer an HMO was passed, this got easier.
The way an HMO works is the primary care doctor gets capitated (or paid per head) every two weeks for each patient. The amount they got paid was based on a patients likelihood of utilizing the doctor’s office. This was determined via a matrix set up based on research. Children 0-5 and people over 65 were capitated at the highest rate because they used the most services. Men age 18-35 were capitated at the very lowest rate because they so rarely see a doctor.
Originally the patient was only responsible for paying any premiums their employer didn’t cover. However few people trusted the system. They felt that if they didn’t pay the doctor, they would get 2nd rate care.
Because of this US Healthcare instituted a $2 copay for primary care visits and a $5 copay for brand name prescriptions. US Healthcare became wildly popular and grew quite quickly. Eventually they merged with Aetna.
So you can thank those untrusting souls back in the 80’s for your co-pays today!