The Failure of HMOs
Although direct costs are always an immediate consideration, there are downsides to an HMO/PPO arrangement that should be considered when implementing this type of structure. Nationwide only a handful of carriers provide a dual option arrangement incorporating an HMO thus limiting the markets that can be approached now and in the future which leads to higher long term costs. Another difficulty is that employees selecting the HMO plan become comfortable with the low out-of-pockets and any change in the benefit structure is increasingly difficult to effect without workforce disruption. From another perspective, an employee that initially selects the HMO is unhappy with the limited provider choice as well as the aggressively managed care concept and is forced into the PPO with considerably higher out-of-pocket costs. These are listed below along with several other inherent difficulties with an HMO/PPO arrangement.
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Less cost controll than originally promised. Rates have increased proportionately as healthcare costs increased.
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First available in the early 60's; peaked in mid to late 80's with hundreds of HMO plans available across the United States.
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Although a number of local HMOs exist, their scope is variable and service unpredictable. Only the largest national insurers continue to provide an HMO arrangement on a consistent basis. Limited market, limited cost control.
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Insurance companies control costs, no incentive to manage costs; have their own profitability to justify to shareholders/owners
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An HMO arrangement does not relate true costs to the medical consumer (low co-pays for high cost services e.g. $20 participant cost for $20,000 of doctors and hospital charges) which leads to over-use/abuse and promotes the misunderstanding that healthcare is free
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Capitation fees create disincentives for treatment - providers are paid annually on a per member basis and retain unused portion of fees collected resulting in a reduction of the amount and quality of care. Note: The combined effects of numbers 5 and 6 above results in a conflict of interests between the insurers, providers, and HMO patients leading to consumer protection legislation (patients' bill of rights) thus negating any valid cost control.
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Regular changes in carriers and level of benefits is necessary to control costs. Eventually the employer will exhaust the amount of allowable benefit cutting and, given the scope of the available market, will engage in a never-ending cycle dictated by the limited number of insurers.
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Once an HMO with significant participation is in place, it is very difficult, if not impossible to move to a more cost-control friendly arrangement without serious disruption of the workforce and increased employee complaints
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The natural tendency for healthy individuals to select HMOs over a PPOs results in an imbalance in the insurer's risk pool artificially driving the PPO costs higher for the group.
Contact
Our offices are located in Chicago IL. However to ensure prompt service and reduce unsolicited spam email you should use the web form email method.If you would like to improve your current efforts to maintain an effective, yet cost contained employee benefits, then contact ....
Mark Singer at: (630) 416-6171