New Medicare regulations and rising corporate costs for health insurance promise to provide new impetus for growth in enrollment in the next few years in health maintenance organizations (HMOs), a generally lower cost alternative to traditional health care.
In the immediate future, once regulations are adopted, HMOs stand to benefit from changes in the law designed to provide an incentive for Medicare recipients to turn to HMOs rather than doctors in private practice for health care.
At the same time, as rising costs of health insurance have forced business to take a harder look at the medical benefits it provides, some companies have begun encouraging employes to enroll in HMOs as one of a number of efforts designed to hold down costs.
HMOs are health-care-providing organizations that generally offer members full medical coverage--both doctor visits and hospital care--for a fixed fee. Because the fee varies little based on how much a patient uses the services of an HMO, such plans encourage preventive health care and have resulted in a lower rate of hospitalization for their members.
On the other hand, HMO patients are limited to seeing doctors who participate in the HMO and detractors question whether members receive the same quality of medical care delivered by the traditional health services system.
Average increases in insurance premiums for corporations have been between 20 and 40 percent, according to Jenifer Stockdale, a spokeswoman for the Health Insurance Association of America. "As far as HMOs are concerned, we have testified in support of them," she said. "We have taken a supportive position all along because they apeared to be very promising in terms of cost containment.
"Part of the reason HMOs have been considered successful and cost-effective is because, dollar for dollar, people appear to be healthier and the rate of hospitalization is lower," she said. HMO members tend to visit doctors more frequently than nonmembers but to be hospitalized less frequently, according to Stockdale.
In 1970 there were only 3.5 million people enrolled in 35 HMOs. By 1978 that figure had grown to 7.3 million members in 198 plans. Then growth really accelerated. By 1982, there were 11 million members in 270 organizations. Since then, another million members have been added.
"In the last six months, the enrollment growth rate has been 15 percent a month," according to Timothy Bell of the Group Health Association of America, a trade association for group practice HMOs. Bell said that growth has been particularly dramatic in some parts of the country where recession has hit hardest.
In Michigan, the epicenter of the recession, the growth rate has been 18 percent this year, according to Bell. The rate of participation in HMOs in Detroit also has grown at record rates, Bell said.
One of the companies where employes have been encouraged to switch to participation in an HMO is Chrysler Corp., which has its headquarters in Highland Park, Mich. Earlier this year, during an open enrollment period in which employes may switch health care plans, the company offered savings bonds to workers already enrolled in an HMO who recruited a colleague to join.
The program, which involved only active employes at Chrysler, resulted in a 25 percent increase in HMO enrollment, according to Walter Maher, director of employe benefits and health services for the auto maker. However, Maher noted that active employes represent a relatively small population right now. Overall, only about 6 to 7 percent of the workers and retirees for whom Chrysler provides benefits participate in HMOs.
Maher said that encouraging participation in HMOs is only one of a number of programs on which Chrysler has embarked to try to reduce the cost of providing health care. "The thing that concerns Chrysler is that health care costs significantly impact the cost of the product we sell," he said.
The combination of what Chrysler pays to provide health care for employes and retirees, its Medicare taxes and the amount of money built into the cost of supplies to cover health-care benefits provided by suppliers to their employes ammounts to approximately $600 per car, he said.
With no deductibles and a large range of benefits, the Chrysler plan is extremely attractive to employes despite the fact that it is "horrendously, outrageously costly" for Chrysler, Maher said.
"We think if all our employes were in HMOs, it would certainly be in our interest and in their interest," he said. The rate Chrysler pays for an employe to participate in an HMO for its hourly, active employes in Michigan is 20 to 25 percent lower than the cost of the premiums it pays Blue Cross for insurance.
"We believe HMOs are the cornerstone of our cost-containment initiative," said Jack Shelton, manager of Ford Motor Co.'s employe insurance program. Shelton said that about 9 percent of the company's employes are enrolled in 27 different HMOs and that the enrollment saves Ford an estimated $7 million.
More important, he said, the presence of a strong HMO also has an impact on the charges by standard "for-fee" providers, helping to hold down costs for the entire community.
The Business Roundtable has included participation in HMOs as one of a number of alternatives members should look at in terms of health-care cost control, said Ed Davis, vice president of corporate affairs for the Eli Lilly Co. "We're not saying that every company has to go into the HMO business.
"HMO's enrollment is up around the country," noted Willis Goldbeck, director of the Washington Business Group on Health, a health-policy organization whose members include major corporations. Goldbeck said that other factors besides increasing health-premium costs were helping to boost enrollment, including the fact that HMOs are increasingly familiar, that prospective members get more word-of-mouth recommendations of them, that more investor-owned HMOs are being created and that the organizations are somewhat better managed now than in the past and doing a better job of marketing.
Still another factor that should increase enrollment is the change in the law affecting Medicare benefits. Once those changes are in place, if a Medicare recipient chooses to go to an HMO for services, the government will pay the HMO 95 percent of what it estimates it would cost to provide the same services otherwise, which guarantees the government a savings of 5 percent.
The difference between the HMO premium, which is expected to be lower, and the amount generated by the 95 percent computation is to be returned to the Medicare recipient in the form of additional health-care benefits or lower costs.
In theory, everyone benefits. The HMO acquires new members; the Medicare recipient gets either a broader range of benefits or reduced costs, and the government gets to save 5 percent of what it would otherwise spend.
"We expect the number of contracts between HMOs and the Medicare system will increase significantly next year when the new provision of the Medicare law goes into effect," said Wayne Fowler, director of group health plan operations for the Health Care Financing Administration of the Department of Health and Human Services, which administers Medicaid and Medicare rules.
Fowler said that the concept is being tested in Miami in a demonstration project. The HMO involved in the demonstration provides all the standard benefits under Medicare plus routine dental care, transportation to medical appointments, outpatient prescription drugs and eye glasses, for which the Medicare beneficiary pays nothing.
Fowler said that the program, which began a year ago, has enrolled 20,000 Medicare members and is growing at a rate of over 1,000 new members a month.
In the Washington area, a new HMO, Virginia Health Plan Inc., is expected to begin delivering services in the fall. The HMO is a subsidiary of the National Hospital Health Systems Corp., a holding company which operates the National Hospital of Orthopaedics and Rehabilitation in Arlington.
The plan will provide services through local private practice physicians working in their own offices throughout Northern Virginia, making it the third "independent practioner" HMO in the area. "Independent practioner" HMOs are a slightly different creature from the clinic-based HMOs and most likely to be created in areas where clinic-based HMOs are operating successfully.
In the Washington area, Group Health Association is the oldest and largest HMO. Begun in the 1930s, it has approximately 114,000 members. The Kaiser-Georgetown Community Health Plan, begun in the 1970s, has approximately 100,000 members, and the George Washington University Health Plan, also of 1970s vintage, has about 22,000 members.
The more recent MD-IPA and HealthPlus, both Maryland independent practice associations, are still small.