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http://www.rwjf.org/files/publications/books/2001/chapter_04.htmlBy the late 1960s, rising health care expenditures encouraged employers to make wider use of HMOs. Paul Ellwood, Jr., then an aide to President Richard Nixon, coined the term "health maintenance organization" in 1970. Ellwood, a physician, believed that restructuring the financing of health care into a capitated system that would reward providers for maintaining patients' health would improve outcomes and lower health costs. Thus, the Nixon Administration moved to develop a health policy framework around HMOs, culminating in the HMO Act of 1973. Nixon and his aides envisioned a rapid expansion of HMOs as a way to curb health inflation and redirect medical care toward preventing rather than just treating illness. The Act lifted barriers to HMO development, helping the expansion along by requiring businesses with more than 25 workers to offer an HMO option, if available, as an alternative to traditional coverage. The Act also provided grants and loans to start new HMOs.
In 1971, fewer than 4 million Americans were enrolled in nearly 40 prepaid health plans, most of which were operating in California.3 The Nixon Administration expected to create nearly 1,700 HMOs. Nixon's staff optimistically forecast that by 1980 some 90 percent of the American population would have access to an HMO.