Managed Care and Employer Premiums

This paper used 1993–1997 data from medium and large size employers to examine the effects of market wide managed care penetration on the premiums paid for employer sponsored health insurance. Regressions were run for weighted average single coverage premiums and for premiums on conventional, HMO, and PPO coverage. Four findings emerged from the analysis. First, increased managed care penetration had no statistically significant effect on weighted average employer premiums. Second, higher HMO penetration resulted in lower HMO premiums but higher conventional and PPO premiums. Third, higher PPO penetration had no statistically meaningful effects across plan types. Finally, the results depended critically on whether firms offered self-insured plans. Higher levels of HMO penetration led to smaller increases in conventional and PPO premiums for firms with self-insured plans, but also yielded smaller premium reductions from HMOs relative to those with purchased coverage.     

Risk Selection in the Massachusetts State Employee Health Insurance Program

Using the Diagnostic Cost Group (DCG) model developed from a national sample, we examine biased selection among one fee-for-service (FFS) plan, one preferred provider organization, and several health maintenance organizations (HMOs) in Massachusetts. The proportions of enrollees in low-risk groups are higher in the HMO plans and lower in the FFS plan. The average age in the FFS plan is 9 years greater than that in the HMO plans. Actual premiums are not consistent with risk levels among HMO plans, resulting in gains in some HMO plans and losses in others as high as 20% compared to expected expenses as computed by the DCG model.     

A survey of mental health service coverage within health maintenance organizations.

This 1978 national survey of all operating Health Maintenance Organizations (HMOs) provided information on the current status of mental health services utilization and service coverage within HMOs. It achieved a 68 per cent response rate. Approximately 90 per cent (108) of the HMOs offered mental health services through basic or supplemental coverage plans; HMO organization characteristics reflected relative heterogeneity; the mean monthly costs for basic health plan coverage (physical and mental health services) were $33.85 (for individuals) and $95.15 (for families); HMOs reported lower physical and mental health hospital utilization and higher ambulatory utilization when compared to more traditional forms of health insurance coverage. The present coverage and uitlization of mental health services within HMOs reflect greater variability of benefits and utilization within HMOs. There is need for further studies of mental health utilization in relation to organizational structure and delivery pattern relationships within HMOs.     

Service-level selection by HMOs in Medicare

In the federal Medicare program, contracting health maintenance organizations (HMOs) are paid on a capitated basis. There has long been concern that an "adverse selection" of risks remain in the traditional fee-for-service (FFS) sector, since beneficiaries with low costs may leave the FFS sector and join the HMOs. The distortion associated with this form of selection is that health plans may design their mix of health care services in order to effectuate favorable selection. This paper scrutinizes patterns of HMO membership and costs by service in the FFS sector for evidence consistent with the hypothesis that HMOs engage in service-level product distortion. We develop a multi-service model of choice between FFS and HMOs and show that if the HMO sector is underproviding (overproviding) a service relative to the FFS sector, we should observe a positive (negative) correlation between the HMO market share and average costs of those remaining in the FFS sector. We estimate the correlation between the HMO market share and the average FFS costs for different health care services using Medicare data for 1996. We find evidence indicating that there exists significant service-level selection by HMOs.     

HMO market penetration and costs of employer-sponsored health plans

Using two employer surveys, we evaluate the role of increased health maintenance organization (HMO) market share in containing costs of employer-sponsored coverage. Total costs for employer health plans are about 10 percent lower in markets in which HMOs' market share is above 45 percent than they are in markets with HMO enrollments of below 25 percent. This is the result of lower premiums for HMOs than for non-HMO plans, as well as the competitive effect of HMOs that leads to lower non-HMO premiums for employers that continue to offer these benefits. Slower growth in premiums in areas with high HMO enrollments suggests that expanded HMO market share may also lower the long-run growth in costs.     

Issues regarding health plan payments under Medicare and recommendations for reform.

The failures of the market for current Medicare health plans include poor information and price distortions and can be attributed to government policy. Reforms that could improve its structure are annual open enrollment periods, premium rebates from health management organizations (HMOs) to members, and termination of the federal government's subsidy of Medicare supplementary insurance. However, the price for a basic Medicare benefits package would still be distorted because Medicare bases its contribution on the cost of a comparable package in the fee-for-service (FFS) sector rather than on the cost of the most efficient plan available to beneficiaries in each market area. The present Medicare HMO program almost certainly increases total Medicare costs and actually discourages HMO growth by shielding beneficiaries from the true price difference between basic benefits in the HMO and FFS sectors. Lacking payment reforms, the Medicare HMO program should be terminated.     

Consumer information and biased selection in the demand for coverage supplementing Medicare.

This study examines how the relationship between health insurance knowledge and the health status of health insurance consumers influences their decisions to purchase insurance coverage. Data from the federal Medicare health insurance program for the elderly in the United States are used. The basic Medicare program provides a limited amount of coverage for health care services obtained from any provider in the private fee-for-service (FFS) market. Beneficiaries of this program may choose to supplement the basic coverage which they receive by two mechanisms: either they may purchase private insurance designed to fill some of the gaps left by the federal program ('Medigap' policies), thereby remaining in the FFS market and preserving their choice of provider, or they may enroll in health maintenance organizations (HMOs), thereby leaving the FFS market and agreeing to use only those providers affiliated with the HMO, and in return receiving broader coverage at little additional out-of-pocket cost. The study was made possible by a unique data set which combines measures of beneficiary knowledge of Medicare coverage with measures of perceived health status, socio-economic characteristics, and insurance coverage choices for a sample of Medicare beneficiaries who participated in an educational workshop about their insurance coverage options. These data were used to estimate a multinomial logistic model of the determinants of insurance choices, where the options included the two listed above and a basic Medicare option. The study explicitly recognizes the interaction between insurance information and health status in health plan choice. These results show that knowledge of coverage does have a differential impact on the decision to purchase health insurance depending on health status. With a high level of knowledge, sicker beneficiaries are less likely to have basic Medicare alone, compared with HMOs or Medigap policies, while healthier beneficiaries are less likely to be enrolled in HMOs, compared with Medigap policies. This finding has important implications for the use of health status measures to adjust capitated payment formulas when knowledgable consumers have the option to enroll in HMOs or remain in the FFS environment. In the absence of health status adjusters for the HMO capitation payments, high levels of coverage knowledge may exacerbate inherent selection bias among these coverage options by healthier and sicker consumers of health insurance.     

Employer Health Insurance Offerings and Employee Enrollment Decisions

Objective. To determine how the characteristics of the health benefits offered by employers affect worker insurance coverage decisions.
Data Sources. The 1996–1997 and the 1998–1999 rounds of the nationally representative Community Tracking Study Household Survey.
Study Design. We use multinomial logistic regression to analyze the choice between own-employer coverage, alternative source coverage, and no coverage among employees offered health insurance by their employer. The key explanatory variables are the types of health plans offered and the net premium offered. The models include controls for personal, health plan, and job characteristics.
Principal Findings. When an employer offers only a health maintenance organization married employees are more likely to decline coverage from their employer and take-up another offer (odds ratio (OR)=1.27, p <.001), while singles are more likely to accept the coverage offered by their employer and less likely to be uninsured (OR=0.650, p <.001). Higher net premiums increase the odds of declining the coverage offered by an employer and remaining uninsured for both married (OR=1.023, p <.01) and single (OR=1.035, p <.001) workers.
Conclusions. The type of health plan coverage an employer offers affects whether its employees take-up insurance, but has a smaller effect on overall coverage rates for workers and their families because of the availability of alternative sources of coverage. Relative to offering only a non-HMO plan, employers offering only an HMO may reduce take-up among those with alternative sources of coverage, but increase take-up among those who would otherwise go uninsured. By modeling the possibility of take-up through the health insurance offers from the employer of the spouse, the decline in coverage rates from higher net premiums is less than previous estimates.     

Medigap premiums and Medicare HMO enrollment

OBJECTIVE: Markets for Medicare HMOs (health maintenance organizations) and supplemental Medicare coverage are often treated separately in existing literature. Yet because managed care plans and Medigap plans both cover services not covered by basic Medicare, these markets are clearly interrelated. We examine the extent to which Medigap premiums affect the likelihood of the elderly joining managed care plans. DATA SOURCES: The analysis is based on a sample of Medicare beneficiaries drawn from the 1996-1997 Community Tracking Study (CTS) Household Survey by the Center for Studying Health System Change. Respondents span 56 different CTS sites from 30 different states. Measures of premiums for privately-purchased Medigap policies were collected from a survey of large insurers serving this market. Data for individual, market, and HMO characteristics were collected from the CTS, InterStudy, and HCFA (Health Care Financing Administration). STUDY DESIGN: Our analysis uses a reduced-form logit model to estimate the probability of Medicare HMO participation as a function of Medigap premiums controlling for other market- and individual-level characteristics. The logit coefficients were then used to simulate changes in Medicare participation in response to changes in Medigap premiums. PRINCIPAL FINDINGS: We found that Medigap premiums vary considerably among the geographic markets included in our sample. Measures of premiums from different insurers and for different types of Medigap policies were generally highly correlated across markets. Our models consistently indicate a strong positive relationship between Medigap premiums and HMO participation. This result is robust across several specifications. Simulations suggest that a one standard deviation increase in Medigap premiums would increase HMO participation by more than 8 percentage points. CONCLUSIONS: This research provides strong evidence that Medigap premiums have a significant effect on seniors' participation in Medicare HMOs. Policy initiatives aimed at lowering Medigap premiums will likely discourage enrollment in Medicare HMOs, holding other factors constant. Although the Medigap premiums are just one factor affecting the future penetration rate of Medicare HMOs, they are an important driver of HMO enrollment and should be considered carefully when creating policy related to seniors' supplemental coverage. Similarly, our results imply that reforms to the Medicare HMO market would influence the demand for Medigap policies.     

Plan choice,health insurance cost and premium sharing

We develop a model of premium sharing for firms that offer multiple insurance plans. We assume that firms offer one low quality plan and one high quality plan. Under the assumption of wage rigidities we found that the employee's contribution to each plan is an increasing function of that plan's premium. The effect of the other plan's premium is ambiguous. We test our hypothesis using data from the Employer Health Benefit Survey. Restricting the analysis to firms that offer both HMO and PPO plans, we measure the amount of the premium passed on to employees in response to a change in both premiums. We find evidence of large and positive effects of the increase in the plan's premium on the amount of the premium passed on to employees. The effect of the alternative plan's premium is negative but statistically significant only for the PPO plans.     

The effect of market structure on HMO premiums

We examine the effects of HMO market structure on HMO premiums from 1988 to 1991. More competition, measured by the number of HMOs in the market area, reduces HMO premiums. Although this effect does not appear for IPAs before the highest level of competition is reached, it appears throughout the competitive range for Group HMOs. More market penetration, measured by the percent of the market area population enrolled in HMOs, reduces premiums for IPAs. Since the goal of managed competition is to reduce health care costs by creating competition among managed health care plans, our results offer encouragement for managed competition advocates.     

Health maintenance organizations: the beginning or the end?

This article describes the changes taking place in a mature HMO market that has been identified as a bellwether HMO community, the Minneapolis-St. Paul metropolitan area. We describe how this market--previously characterized by traditional HMOs and traditional fee-for-service plans--has been transformed within the past five years into a market with a variety of plans competing on the dimensions of premiums, provider choice, and coverage. Among the most significant changes are the evolution of the local Blue Cross and Blue Shield plan into a form resembling an individual practice arrangement (IPA) with broad coverage and broad provider choice, and the appearance of preferred provider plans sponsored by the HMOs. We suggest that such changes have blurred the distinction between health plan types, making traditional plan designations no longer valid for either health policy analysis or health services research. For example, studies contrasting the performance of HMOs and fee-for-service plans should concentrate instead on the various dimensions of these plans, such as coverage and openness of provider choice. The article is intended to stimulate discussion and to suggest a new framework for describing health plan competition.     

A comparison of satisfaction levels between traditional and managed care Medicare recipients

The Spokane County health department conducted a survey of randomly selected households in the county. The survey combined several previously validated instruments. Since the purpose of this study was to compare satisfaction levels and access and communication issues of Medicare recipients in Health Maintenance Organizations (HMOs) to Medicare recipients using the traditional fee-for-service (FFS), a subpopulation was used. The results of this study did not support the findings of previous studies; HMO members were older and had no differences in health status from traditional FFS members. HMO members were more educated, had higher incomes, and were more satisfied with their care than the FFS group. The authors suggest that these differences from previous studies may be due to the fact that the majority of HMO respondents are in not-for-profit HMOs which return a fairly high proportion of the insurance premium to the patients in the form of medical care. They also suggest that not-for-profit HMOs may be different than for-profits due to the lack of pressure to return profits to the stockholders.     

Consumer acceptance of prepaid and fee-for-service medical care: results from a randomized controlled trial.

Do consumers find the care provided by health maintenance organizations (HMOs) and that provided in the fee-for-service (FFS) system equally acceptable? To address this question, we randomly assigned 1,537 people ages 17 to 61 either to FFS insurance plans that allowed choice of physicians or to a well-established HMO. We also studied 486 people who had already selected the HMO (control group). Those who had chosen the HMO were as satisfied overall with medical care providers and services as their FFS counterparts. The typical person assigned to the HMO, however, was significantly less satisfied overall relative to FFS participants. Attitudes toward specific features of care favored both FFS and HMO, depending on the feature rated. Four differences (length of appointment waits, parking arrangements, availability of hospitals, and continuity of care) favored FFS; two (length of office waits, costs of care) favored the HMO. HMO versus FFS differences in ratings of access to care and availability of resources mirror differences in the organizational features of these two systems that are generally considered responsible for the significantly lower medical expenditures at HMOs. Regardless of their origin, less favorable attitudes toward interpersonal and technical quality of care in the HMO have marked consequences: dissatisfaction and disenrollment.     

Did the Affordable Care Act's dependent coverage mandate increase premiums?

We investigate the impact of the Affordable Care Act's dependent coverage mandate on insurance premiums. The expansion of dependent coverage under the ACA allows young adults to remain on their parent's private health insurance plans until the age of 26. We find that the mandate has led to a 2.5–2.8 percent increase in premiums for health insurance plans that cover children, relative to single-coverage plans. We are able to conclude that employers did not pass on the entire premium increase to employees through higher required plan contributions.     

The effect of HMOs on the inpatient utilization of medicare beneficiaries

OBJECTIVE: To determine the effect of joining HMOs (health maintenance organizations) on the inpatient utilization of Medicare beneficiaries. DATA SOURCES: We linked enrollment data on Medicare beneficiaries to patient discharge data from the California Office of Statewide Health Planning and Development (OSHPD) for 1991-1995. DESIGN AND SAMPLE: A quasi-experimental design comparing inpatient utilization before and after switching from fee-for-service (FFS) to Medicare HMOs; with comparison groups of continuous FFS and HMO beneficiaries to adjust for aging and secular trends. The sample consisted of 124,111 Medicare beneficiaries who switched from FFS to HMOs in 1992 and 1993, and random samples of 108,966 continuous FFS beneficiaries and 18,276 continuous HMO enrollees yielding 1,227,105 person-year observations over five years. MAIN OUTCOMES MEASURE: Total inpatient days per thousand per year. PRINCIPAL FINDINGS: When beneficiaries joined a group/staff HMO, their total days per year were 18 percent lower (95 percent confidence interval, 15-22 percent) than if the beneficiaries had remained in FFS. Total days per year were reduced less for beneficiaries joining an IPA (independent practice association) HMO (11 percent; 95 percent confidence interval, 4-19 percent). Medicare group/staff and IPA-model HMO enrollees had roughly 60 percent of the inpatient days per thousand beneficiaries in 1995 as did FFS beneficiaries (976 and 928 versus 1,679 days per thousand, respectively). In the group/staff model HMOs, our analysis suggests that managed care practices accounted for 214 days of this difference, and the remaining 489 days (70 percent) were due to favorable selection. In IPA HMOs, managed care practices appear to account for only 115 days, with 636 days (85 percent) due to selection. CONCLUSIONS: Through the mid-nineties, Medicare HMOs in California were able to reduce inpatient utilization beyond that attributable to the high level of favorable selection, but the reduction varied by type of HMO.     

Selection of health insurance by an employee group in Northern California.

Enrollment trends for a large employee group were analyzed to determine the extent to which consumers chose Blue Cross or Health Maintenance Organization (HMO) health insurance under various premium differentials. Data were collected from employment records of six University of California campuses for the period 1967 to 1978. Enrollment in the Kaiser Foundation Health Plan (an HMO) more than doubled during this period while enrollment in Blue Cross remained relatively stable. This increased preference for Kaiser coverage was associated with a concurrent relative rise in costs to employees of Blue Cross coverage. These data suggest that consumers are sensitive to insurance costs, and that given the opportunity HMOs can compete effectively with traditional health insurance.