The managed care industry has not been static or stagnant in the face of these problems. But its pivotal position as the intermediary or middleman between buyers and sellers—employers and providers (see Figure 3)—has proven to be a difficult and delicate one to sustain to the satisfaction of both parties. In addition, consumers, whose affiliation with MCOs is orchestrated by their employer/sponsors, access providers of care through this MCO connection, because of the conditions imposed on the benefit packages offered to them. In essence, the managed care industry’s role is simply the facilitation of exchange between buyers and sellers to ensure increased value as measured by outcomes over cost. But the simplicity of the statement masks the high degree of difficulty and contentiousness that facilitation has taken on.
Figure 3. Multi-party Relationships in the Managed Care Arena
Given the challenges of satisfying disparate needs of purchasers, consumers, and providers, many of the adaptations that managed care organizations, and in particular traditional HMOs, have made have taken them further away from their origins as tightly crafted, prepaid organizations with monogamous provider relationships. The modal HMO is now structured as an independent practice association (IPA) or network model plan comprised of provider networks whose constituent providers have multiple health plan and other payer relationships.8 The web of contracts in which providers are situated imposes confusing and conflicting incentives and constraints on them. Many providers have banded together to try to simplify relationships or screen out some of the complexity.
The product array offered by managed care plans has also paralleled this diversification in network configurations. The typical health plan is now a multi-product health benefits firm offering a widening spectrum of products with finer gradations among these products to try to meet purchaser and consumer tastes and preferences.9 As Figure 3 illustrates, the health plan is effectively creating and offering a vector of products that tries to match what buyers want in terms of financing, benefit, and delivery system designs. At the same time, health plans arrange to make these products available by negotiating with various configurations or networks of providers representing differing service constellations and organizational structures by negotiating terms of participation and payment methods. Overlaying product diversity on network variation results in a vastly increased level of complexity for both consumers and providers, and not inconsequential increases in administrative expense to design, offer and manage them. The simple days of only a high and a low option product being offered by insurers, or single products with no out-of-network benefits being offered by HMOs are long gone.
Product and network diversification has been designed primarily to respond to changing preferences among both purchasers and consumers. Regulatory developments also add impetus to make changes, particularly as the managed care backlash has grown. Policy-related impositions have targeted many facets of managed care and they often have differential and, in some cases, distorting effects on products and product arrays.10 Health plans contend that HMO products are subject to a disproportionate amount of regulation and benefit mandates, while far less attention is focused on PPO products. Growth in self-funded preferences has been traced to these mandates, given the influence of the Employee Retirement Income Security Act (ERISA)11 that preempts self-funded plans from state regulation. This growth in turn has led employers to opt for products in which premiums are not being paid. State variation in managed care regulation further complicates compliance and accommodation. These developments seem to be particularly challenging for conventional, limited product HMOs whose traditional products and networks are most commonly found in the regulatory line of fire.
- J. Gabel, J. Whitmore, C. Bersten, and L. Grimm, “Growing Diversification in HMOs, 1988-1994,” Medical Care Research and Review,54(1):101-117.
- M. Gold and R. Hurley, "The Role of Managed Care Products in Managed Care Plans," Inquiry 34(Spring):29-37.
- American Association of Health Plans, The Regulation of Health Plans. Washington, DC: AAHP, 1998.
- G. Jensen and M. Morrisey, “Employer-Sponsored Health Insurance and Mandated Benefit Laws,” Milbank Quarterly, 77(4):425-459, 1999.