Several notable trends through the 1990s are evident in health insurance coverage as shown in Figure 836. The role of indemnity insurance has shrunk dramatically, and has become nearly non-existent in many markets. Secondly, managed care has grown substantially in all three of the principal products—HMO, PPO, and POS. Traditional HMO products represent only one third of managed care participation while PPOs represent almost one half. The fastest growing product is the POS product—rising from 7 percent to 25 percent in the seven-year period shown here, which allows members to have access to out of network providers without a primary care gatekeeper referral.Because the POS product (sometimes known as a “leaky HMO”) may be offered as a derivative of both HMOs and, to a lesser extent, gatekeeper PPOs, counts of enrollment that do not break out the POS product allocate membership to the other two products, as shown earlier in Figure 1.
Figure 8. National emploee enrollment by type of plan*
* Numbers do not add up to 100 due to rounding.
Source: William M. Mercer, New York - Business and Health, The State of Health Care in America 1998 and Kaiser/HRET Survey, 2000.
In general, the direction of product offerings has been toward more choice and fewer restrictions to respond to pressure from consumers that the traditional HMO was too confining with no out-of-network benefit. Typically, there are direct costs to members in the form of higher co-payments or different coinsurance levels for out of network use that are intended to promote cost conscious decisions. The POS product has become so appealing that many HMOs use it as their lead marketing product because it can compete successfully against PPOs on the access dimension. And it typically results in the bulk of care being rendered by the core HMO provider network since little out-of-network care actually ensues. As discussed below, HMO and POS products may be made even less restrictive, when plans eliminate the primary care gatekeeper function and they become “open access,” almost indistinguishable from PPOs. These products do present challenges to plans in terms of how to compensate providers and control utilization patterns, particularly if capitation-based payments for professional services are in use.
Paralleling changes on the delivery side to ease access, is a willingness among health plans, including HMOs, to accommodate purchaser preferences for more flexibility in financing. As self-funding has grown among employers and particularly become more common among smaller employers, they seek out networks and network-based products that do not require prepayment or at least full prepayment37. Often this decision is motivated by a desire avoid benefit mandates or other strictures that may be imposed on traditional risk-based products38. For health plans, this has meant growth in administrative services only (ASO) business and migration away from fully insured business.
When traditional product networks are rented out only for access and other administrative fees, a health plan whose principal product has been a traditional HMO loses the ability to use provider capitation contracts because it has not been prepaid. In effect, persons in self-funded accounts become free riders in the networks that are being largely financed by the fully insured lives in them. As the ASO portion of lives grows, the ability to sustain more traditionally structured networks and compensation arrangements could be undermined. For many in the HMO industry, regulatory requirements that are being disproportionately placed on fully insured HMO products are effectively driving business away from these products.
- J. Robinson, “The Future of Managed Care Organizations,” Health Affairs, 18(2):7-24.
- J. Grossman, “Health Plan Competition in Local Markets,” Health Services Research, 35(1):17-35, 2000.
- R. Cunningham and R. Cunningham. The Blues: A History of the Blue Cross and Blue Shield System, Chicago: Northern Illinois University Press, 1997.