The general idea of prepaid medical care dates back to the early part of this century. The first of what we now call HMOs were started in the late 1920s in Elk City, Oklahoma (as a farmers' cooperative), and in Los Angeles, California (where the Ross-Loos Medical Group offered prepaid services to employees of the Los Angeles County Department of Water and Power and their families.) Over time, more HMO-type systems began to grow, typically organized by businesses and community groups eager to make health care available to their workers and members at costs they could better afford.

A number of other large prepaid group practices had their origins in the 1940s and 1950s. In addition, the first of what are now called Individual Practice Associations (IPAs) was begun in 1954 by fee-for-service physicians seeking to compete with the group plans.

In the 1960s, health care costs grew rapidly, and pressure mounted for federal government intervention. In fact, the term "HMO" was developed in the early 1970s as part of a Nixon Administration strategy to promote the growth of prepaid plans as a way of improving the capacity and efficiency of the nation's health system. New federal legislation, the 1973 Health Maintenance Organization Act, recognized the promise of HMOs and encouraged their growth nationwide by removing legal impediments to their development. By the end of 1978, there were more than 200 HMOs spread over 37 states.

The 1980s were a period of spectacular growth among HMOs. The number of HMOs more than doubled and enrollment increased fourfold, largely in response to employers and consumers seeking access to high quality health care at more affordable prices.