In the 1970s the United States was rapidly sliding into a recession, and medical spending was growing faster than the economy. Medicare (which provides basic health care for the elderly and disabled) and Medicaid (which provides health care for low-income individuals) were both signed into law in 1965 and proved to be expensive. The medical insurance available to most Americans not covered by either government program was a traditional plan that typically paid whatever their doctor or hospital charged. No one—not the patient, the doctor, or the hospitals—had any incentive to control costs. However, in 1970, Minnesota neurologist Paul Ellwood and Stanford University management professor Alain C. Enthoven developed the health maintenance organization (HMO) concept that promised to curb the rise in health care spending and shift significant future spending from the government to the private...