Center for Studying Health System Change

Rising Health Care Costs Might Spark Resurgence of HMOs Among Consumers

Health Affairs Study Shows Importance of Cost Considerations in HMO Enrollment Decisions

News Releases
May 14, 2002

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ASHINGTON, D.C.—Cost considerations—not whether people are healthy or sick—play a major role in privately insured people’s decision to enroll in health maintenance organizations (HMOs) when they have a choice of health plans, according to a study by Center for Studying Health System Change (HSC) researchers published in the May/June edition of the journal Health Affairs.

"The return of rapidly rising health care costs and the need for workers to contribute more for their coverage suggest that lower-cost, tightly managed HMOs may regain popularity with American consumers, especially people with low incomes," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded exclusively by The Robert Wood Johnson Foundation.

Contrary to the conventional thinking that HMO enrollees are healthier than people in other types of health plans, the study found that nonelderly people enrolled in HMOs are slightly less healthy. Based on HSC’s 1998-99 Community Tracking Study Household Survey, the study sample included 34,900 nonelderly people with private insurance. About 54 percent reported being enrolled in HMOs, which additional analysis suggests includes point-of-service plans, while 46 percent were enrolled in other types of health plans.

"If HMO enrollees were healthier, then some HMO cost savings would be due to the fact that their enrollees tend to require fewer health care resources than enrollees in other plans," said Elizabeth Schaefer, M.A., an HSC health research analyst and co-author of the study, along with HSC Senior Health Researcher James D. Reschovsky, Ph.D. "However, the fact that they’re not healthier means that HMOs can operate at lower cost for other reasons—perhaps lower provider payments or more efficient care delivery."

While the HSC study found that nonelderly privately insured HMO enrollees are slightly less healthy on average, other research offers considerable evidence that enrollees in Medicare and Medicaid HMOs may be healthier than average.

When examining the 13,427 adults in the study with employer-sponsored coverage who had a choice of an HMO or non-HMO plan, researchers found that health status played a negligible role in people’s decisions to enroll in an HMO. Income and age were more important factors in people’s choice of plans. After accounting for other factors, such as education and race, researchers found older people were less likely to choose an HMO, perhaps because they were less familiar with them, while lower-income people were more likely to enroll in an HMO, most likely because of lower premiums and cost sharing.

The study also examined people’s willingness to trade broader choice of health care providers for lower out-of-pocket health care costs—the hallmark of a traditional HMO. When people had a choice of plans, those who chose HMOs were consistently more willing to trade broader provider choice for lower costs.

Of those with a choice of plans, almost two-thirds of people enrolled in HMOs were willing to trade more choice for lower costs, while less than half of people enrolled in non-HMO plans were willing to restrict choice in return for lower costs.

In the late 1990s, the strong economy and tight labor market sheltered many employees from rising premiums as employers absorbed most of the increases to stay competitive and attract and retain workers. Now, with a weaker economy and larger premium increases on the horizon, employers are more likely to increase consumer cost sharing. Increased consumer responsibility for health care costs might reverse the recent trend of declining HMO enrollment and the shift to less restrictive health plans, including preferred provider organizations that offer more choice.

"While HMOs have taken a beating in the court of public opinion in recent years, this study should remind employers and policy makers that costs count for many consumers and that a significant number of people are willing to accept less choice in return for lower costs," Ginsburg said.

Helen Darling, president, Washington Business Group on Health, www.wbgh.org
"Most employers can’t continue to absorb double-digit premium increases, and workers are going to have to take more responsibility for their health care costs. The study is a timely reminder for employers struggling to design affordable, high-quality health benefits that lower-cost coverage options matter to workers, especially lower-wage employees."

Gail Shearer, director of health policy analysis, Consumers Union, www.consumersunion.org
"Increasing health insurance premiums provide strong financial incentives for consumers to trade choice of doctor for lower premiums. The good news is that lower premiums mean broader access to health insurance coverage. The downside is that greater freedom of choice of providers may become a privilege out of reach of lower-income consumers. The study reinforces the need for Congress to enact a strong federal Patient’s Bill of Rights that would ensure consumers are fully informed about any limitations in their choice of doctor."

Karen Ignagni, president, American Association of Health Plans, www.aahp.org
"This study demonstrates the role of America’s health plans in promoting economic security and access to care for people at all stages of their lives and health. It points to the need for choice in health plans and the dangers of a ’one-size-fits-all’ public policy."

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded exclusively by The Robert Wood Johnson Foundation and affiliated with Mathematica Policy Research, Inc.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. For more information, contact Jon Gardner at Health Affairs at (301) 652-7401, ext. 230, or via e-mail, press@healthaffairs.org.