Evolution of Managed Care

Introduction

• What is Managed Care?

• Brief History

Types of Managed Care

• Health Maintenance Organization (HMO)

• Preferred Provider Organization (PPO)

• Point-of-Service (POS) Plan

Indemnity vs. Managed Care

• Indemnity insurance pays for service (care).

• Managed Care insurance provides the service (care).

Managed Care

• Incentive to organize health care delivery more efficiently

• Can save money by paying providers less? (relative market power important)

• Can ration service through primary care physicians.

• Can engage in positive selection.

Studies: Indemnity v. HMO

• Selection bias– HMO members younger, healthier, lower

specialist utilization

• Treatment intensity

• Patient outcomes

Studies: Indemnity v. HMO

• Patient Satisfaction– generally lower as direct rationing is used to

address moral hazard

• Differences in Cost– cream skimming, spill over effects, but

generally lower costs.

Comparisons between Managed Care plans

• HMOs have about the same costs as other managed care plans.

• There is probably a mix of effects. HMOs ration specialty services well, but not PCPs.

• Other plans ration specialists less well, but use of other moral hazard averting devices.

Carve Outs

• Carving out services– Mental Health/behavioral

– They lower costs, possibly through lower quality of service

– Pharmacy Benefits

Managed Competition

• Increased competition among insurers

• Pooling of buyers.

Dynamic Effects of Managed Care

• Rate of technology diffusion– Slower?

• Growth rate of costs– While costs may be lower growth rates are

not

Average Annual Firm and Worker Premium Contributions and Total Premiums for Covered Workers for Single and Family

Coverage, by Plan Type, 2008

$705

$3,380

$731

$3,344

$865

$3,730

$721

$3,354

$4,049

$9,742

$4,071

$9,593

$3,783

$8,600

$3,983

$9,325

$2,813

$468*

$7,309*

$3,454*

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000

Single

Family

Single

Family

Single

Family

Single

Family

Single

Family

Worker ContributionEmployer Contribution

* Estimate is statistically different from All Plans estimate by coverage type (p<.05).

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008.

HDHP/SO

HMO

PPO

POS

ALL PLANS

$3,922*

$12,680

$4,754

$13,122

$4,802

$12,937

$4,647

$12,330

$4,704

$10,121*

40%

5%

13%

30%

10%

1%4%

6%

0%

10%

20%

30%

40%

50%

No Worker Contribution* Worker ContributionGreater Than 50% *

No Worker Contribution* Worker ContributionGreater Than 50% *

All Small Firms (3-199 Workers)

All Large Firms (200 or More Workers)

Percentage of Covered Workers with No Premium Contribution or a Contribution of Greater than 50% of the

Premium, 2008

*Estimate is statistically different between All Small Firms and All Large Firms within category (p<.05).

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008.

Single Coverage Family Coverage

Distribution of Covered Workers by In-Network General Annual Deductible Amounts for Single Coverage, by Plan Type, 2008

50%

80%

16%

12%

13%

32% 36%

4%

16%

21%

5%

62%

9%

<1%

3%

5%

38%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

HDHP/ SO

POS

PPO

HMO

No Deductible $1 to $499 $500 to $999 $1,000 to $1,999 $2,000 or More

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008.

Percentage of All Firms Offering Health Benefits, 1999-2008*

65% 68% 68% 66% 65% 63%59% 60% 59% 62%

99% 99% 99% 98% 98% 99% 98% 98% 99% 99%

56% 57% 58% 58%55% 52%

47% 48% 45%49%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

All Small Firms (3-199 Workers)

All Large Firms (200 or More Workers)

3-9 Workers

*Tests found no statistical differences from estimate for the previous year shown (p<.05).

Note: Estimates presented in this exhibit are based on the sample of both firms that completed the entire survey and those that answered just one question about whether they offer health benefits.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2008.

Exhibit 3: Average Annual Worker Premium Contributions Paid by Covered Workers for Single and Family Coverage, 1999-2008

$318 $334 $355$508 $558 $610 $627 $721

$1,543 $1,619

$2,713

$3,354

$466*$694*

$3,281*

$2,973*

$2,661*$2,412*

$2,137*

$1,787*

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Single Coverage

Family Coverage*Estimate is statistically different from estimate for the previous year shown (p<.05).

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2008.

$624

$4,101

$769

$4,586

$12,091

$4,763

$2,982

$12,973

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Premium Worker Contribution* Premium* Worker Contribution*

All Small Firms (3-199 Workers) All Large Firms (200 or More Workers)

Single Coverage

Family Coverage

Average Annual Worker Premium Contributions and Total Premiums for Covered Workers, Single and Family

Coverage, by Firm Size, 2008

* Estimates are statistically different between All Small Firms and All Large Firms (p<.05).

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008.

Among Firms Offering Health Benefits, Percentage That Offer an HDHP/SO, by Firm Size, 2005-2008

4% 4%

10%7%

5%

10%

18%

13%15%

22%

17% *

13% *

0%

10%

20%

30%

40%

50%

3-199 Workers 200-999 Workers 1,000 or More Workers

2005200620072008

* Estimate is statistically different from estimate for previous year shown (p<.05).

Note: The 2008 estimate includes 0.3% of all firms offering health benefits that offer both an HDHP/HRA and an HSA-qualified HDHP. The comparable percentages for 2005, 2006, and 2007 are 0.3%, 0.4%, and 0.2%, respectively.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2005-2008.

$5,791$2,196

$6,438*

$7,061*

$8,003*

$9,068*

$9,950*

$10,880*

$11,480*

$12,106*

$12,680*$4,704*

$4,479*

$4,242*

$4,024*

$3,695*

$3,383*

$3,083*

$2,689*

$2,471*

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999 Single Coverage

Family Coverage

Average Annual Premiums for Single and Family Coverage, 1999-2008

* Estimate is statistically different from estimate for the previous year shown (p<.05).

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2008.

Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2008

73%

46%

27%

10%

8%

7%

4%

5%

5%

3%

25%

21%

20%

21%

20%

11%

26%

28%

39%

42%

46%

52%

54%

55%

61%

60%

57%

58%

7%

14%

24%

21%

23%

18%

17%

15%

15%

13%

13%

12%

4%

5%

8%

3%

3%

2%

16%

21%

31%

28%

29%

24%

27%

24%

0% 20% 40% 60% 80% 100%

1988

1993

1996

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

ConventionalHMOPPOPOSHDHP/ SO

* Distribution is statistically different from the previous year shown (p<.05). No statistical tests were conducted for years prior to 1999. No statistical tests are conducted between 2005 and 2006 due to the addition of HDHP/SO as a new plan type in 2006.

Note: Information was not obtained for POS plans in 1988. A portion of the change in plan type enrollment for 2005 is likely attributable to incorporating more recent Census Bureau estimates of the number of state and local government workers and removing federal workers from the weights. See the Survey Design and Methods section from the 2005 Kaiser/HRET Survey of Employer-Sponsored Health Benefits for additional information.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2008; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.

*

*

*

*

*

Among All Large Firms (200 or More Workers) Offering Health Benefits to Active Workers, Percentage of Firms Offering Retiree Health Benefits,

1988-2008*

66%

46%

36%40% 40% 40%

35% 37% 36% 38% 36%33% 35% 33% 31%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1988 1991 1993 1995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

*Tests found no statistical difference from estimate for the previous year shown (p<.05). No statistical tests are conducted for years prior to 1999.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2008; KPMG Survey of Employer-Sponsored Health Benefits, 1991, 1993, 1995, 1998; The Health Insurance Association of America (HIAA), 1988.

Among All Large Firms (200 or More Workers) Offering Health Benefits to Active Workers and Offering Retiree

Health Benefits, Percentage of Firms in Which at Least Some Active Employees are Eligible for Retiree Health Benefits, by

Firm Size, 2008*

90%

68%

90%

69%

89%

72%

90%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Early Retirees Medicare-Age Retirees

200-999 Workers

1,000-4,999 Workers

5,000 or More Workers

All Large Firms (200 orMore Workers)

* Tests found no statistical difference between estimates when compared to estimate for all large firms not in the indicated size category (p<.05).

Early Retirees: Workers retiring before age 65.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008.