Managed Care: There's No Stopping It Now

By Weiss, Barbara | Medical Economics, March 13, 1995 | Go to article overview

Managed Care: There's No Stopping It Now


Weiss, Barbara, Medical Economics


The battle smoke has cleared. For good or ill, managed care has emerged victorious. Americans are moving into new health-care settings in unprecedented numbers, and physicians are following their patients as quickly as they can. As one doctor, now an executive of a managed-care plan, puts it, "The marketplace always wins."

The movement away from traditional fee-for-service medicine has been so precipitous, it has taken even the staunchest advocates of managed care somewhat by surprise. In 1988, indemnity insurance accounted for 72.6 percent of the private health insurance market; by 1993, it had shrunk to 33.3 percent.

The powerhouse of the managed-care movement is currently the preferred provider organization, although some experts believe the PPO is simply a transitional phase on the road to more thoroughly "managed" care. Enrollment in PPOs increased from 12.2 million in 1987 to 76.6 million in 1993, according to a survey of the American Association of Preferred Provider Organizations.

Although recent growth may have slowed somewhat, it continues to be strong; the number of those with private insurance eligible to use PPO networks increased by 32 percent from 1992 to 1993. At the same time, hundreds of new networks were formed, many of them offering a wider diversity of services.

Total enrollment in HMOs is also growing at a strong pace, from 29.3 million in 1987 to more than 45 million in 1993. The Group Health Association of America estimates that by the end of 1994, 50 million Americans were enrolled in HMOs. In contrast, the actual number of HMOs peaked in the late 1980s, declining over the past several years as market forces caused shake-outs and consolidation.

Although HMO enrollment continues to climb briskly, the industry has changed from the days when it pioneered the staff-model prototype. InterStudy, a Minneapolis-based health-care-research company, reports that IPA-model HMOs are currently growing faster than the more traditional staff models. And since 1990, plans that mix various types have grown so rapidly they now cover 30 percent of all HMO enrollees. (For a more detailed analysis of the HMO marketplace, see page 36.)

Even as traditional HMOs continue to add patients, new forms of managed care constantly evolve. Point-of-service plans are the newest hybrids; their enrollment grew from virtually zero in 1987 to more than 2 million in 1993, according to the GHAA.

Unlike traditional "pure" HMOs, which cover care only when patients go to doctors and hospitals within the network, POS plans pay for care outside the network--though imposing deductibles and higher copayments. It's a measure of the popularity of these flexible programs that some traditional HMOs, even the group-model Kaiser, are now offering POS options.

Indemnity insurance's "death spiral"

As managed-care options proliferate, fee-for-service medicine shrinks apace. Bradford Koles of the Advisory Board in Washington, D.C., explains that as market reform spreads, insurers and hospitals are buying up primary-care practices, reducing their panels of specialists, and switching from fee-for-service to capitation. "Capitation crowds out other forms of payment," Koles says, adding that in most mature markets, indemnity coverage is approaching a "death spiral."

Moreover, even where indemnity insurance has held its own, it has become increasingly "managed." In 1987, 41 percent of these plans had some form of utilization review; by 1990, that number had grown to 95 percent.

Most managed-care plans have been sponsored by employers, but the public sector is now embracing HMOs, too. The number of Medicaid managed-care programs more than tripled between 1983 and 1991. In 1993 alone, Medicaid enrollment in HMOs increased by 21 percent and Medicare enrollment rose 11 percent, according to Marion Merrell Dow's Managed Care Digest, prepared by SMG Marketing Group of Chicago.

All these plans were designed to rein in the runaway inflation of health-care delivery. …

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