HMOs in Unstable Condition: Members Bolt to Other Plans
HMOs, once the top choice for Americans who get healthcare as a job perk, are so last century.
Tightly controlled health maintenance organizations have steadily lost ground over the last decade to preferred provider organizations, which offer greater choice of physicians and hospitals and direct access to specialists -- though at a higher price.
HMOs garnered only 25% of the employer-based health benefits market last year, down from a high of 31% in 1996, according to a recent survey by the Kaiser Family Foundation, a Menlo Park, Calif.-based think tank. During the same period, PPOs nearly doubled their market share to 55%.
HMO enrollment in Blue Cross and Blue Shield plans, which cover more than 90 million Americans, has declined steadily since 2001, while the Blues’ PPO enrollment has surged. Cypress-based PacifiCare Health Systems Inc., which sells both types of plans, said all of its recent growth was from PPOs.
Even in California -- where HMOs got their start and remain the most dominant health plan -- enrollment has slipped. During the recent economic downturn, HMOs lost 1.4 million members, according to the state Department of Managed Healthcare. Oakland-based Kaiser Permanente, the nation’s largest nonprofit HMO, has struggled to keep its membership steady.
“HMOs have lost their edge,” said Sally Pipes, president of the Pacific Research Institute, a San Francisco-based think tank. “Patients were just furious with having to go through gatekeepers to get care from a specialist, so there was this ... movement to PPOs.”
Initially, HMOs gained popularity with employers and workers because they held expenses down by requiring patients to go through primary care physicians before being referred to specialists. But as HMOs mushroomed during the late 1990s, they became lightening rods for complaints about overly restrictive healthcare.
More recently, benefits experts say, the move away from HMOs has been propelled by large employers because it’s easier to shift rising healthcare costs to workers enrolled in PPOs. Such plans traditionally have had more flexible benefit designs and more pricing mechanisms to tinker with, including deductibles. And now, HMOs are playing catch-up.
“What’s happening to HMOs is really at the heart of a repositioning in the healthcare industry,” said Maureen Sullivan, vice president in charge of strategy at the Blue Cross Blue Shield Assn.
PPOs, which are less rule-bound than HMOs, were quick to respond to complaints about soaring premiums by introducing a spate of plans with higher deductibles, lower benefits or both.
One of the most talked-about new plans is Tonik, launched a few months ago by the California Blue Cross subsidiary of WellPoint Inc., the nation’s largest health insurer. Directed toward people in their 20s, Tonik seeks a coveted group insurers call the “young invincibles” because they are rarely sick.
The company’s marketing campaign looks nothing like the button-down image the Blues have long presented. Silhouetted snowboarders careen across Tonik’s website, on which medical plans have hipster names such as the “calculated risk-taker” and the “part-time daredevil.” Its monthly premiums are as low as $64, with out-of-pocket deductibles as high as $5,000 (the “thrill-seeker”).
The most controversial feature of Tonik is its exclusion of any maternity coverage.
Blue Cross says Tonik serves a niche of the uninsured market -- people who are put off by high premiums because they rarely see a doctor. “Because of their age, attitude and culture, this group wasn’t interested in paying for maternity coverage,” said Michael Chee, a Blue Cross spokesman. “Maternity is one of the higher-cost items to price a policy for, so taking it out allowed us to price it lower.”
Critics say such plans allow insurers to cherry-pick the healthiest consumers but offer skimpy benefits. “The market is likely to turn PPOs from the Cadillac of plans into Pintos that might cost less but have much less protection,” said Jerry Flanagan, a spokesman for the Santa Monica-based Foundation for Consumer & Taxpayer Rights.
“The problem when you exclude benefits like maternity coverage is you don’t have fair risk pools in the marketplace anymore,” said Astrid Meghrigian, a lawyer for the California Medical Assn. “People have babies on [an HMO plan] and then go back into a cheaper PPO.”
This plan-hopping has pushed a rising tide of people with costly health problems such as diabetes, morbid obesity and heart failure onto HMOs, whose costs are capped.
“What’s strained the HMOs in terms of economics,” PacifiCare Chief Executive Howie Phanstiel said, “is the young, healthy people going into PPOs.”
This slicing and dicing of the health insurance pie has also helped PPO plans to close in on the HMOs’ biggest perceived advantage: price. Last year, an employee’s share of the premium for family coverage in an employer-provided HMO averaged $2,674, the Kaiser think tank said, while the employee’s share of a typical family PPO was only $17 more.
Tonik’s launch by WellPoint came in the wake of a wave of new PPO plans that had even Kaiser Permanente feeling the heat. WellPoint’s plan “was to take all the young invincibles and leave us with the rest,” said Dr. Jeffrey Weisz, Kaiser’s Southern California medical director. “So we got into the game.”
Now Kaiser is rolling out plans with something health experts never thought they’d see out of a HMO: deductibles. Its new DHMOs -- the D stands for “deductible” -- give members Kaiser-style managed-care coverage with deductibles of up to $1,500 per individual and $3,000 per family. Regular adult physicals and well-baby care, along with other preventive care mainstays, require modest co-payments but do not trigger a member’s deductible.
In the first seven months of the DHMO’s phase-in, 10,000 Californians signed up.
Without change, some benefits experts believe that HMOs will continue to lose market share if health savings accounts take off.
These tax-sheltered, portable savings accounts recently launched by the federal government are intended to rein in healthcare costs by putting more of the consumer’s own money on the line through high deductibles. Because they must be paired with high-deductible health plans, the HSAs are seen as a better match for PPOs.
Unwilling to cede that territory, HMOs have begun trotting out high-deductible plans that also qualify for federal health savings funds.
Kaiser has introduced high-deductible plans in two states and is awaiting permission from California regulators to market them here.
“I don’t think any of the HMOs feel that the health savings accounts are the way the system should be moving,” said Larry Levitt, a vice president at the Kaiser Family Foundation. “But they don’t want to be caught flat-footed if the market does move aggressively that way.”
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In decline
Preferred provider organizations have surpassed HMOs as the top choice among employer-sponsored health plans. In 1996, HMOs were No. 1.
Percentage of U.S. workers covered by private insurance plans
1996
PPOs: 28%
HMOs: 31%
2004
PPOs: 55%
HMOs: 25%
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Not shown are conventional and other types of plans.
Source: Kaiser Family Foundation
