The backlash against managed care

Nation's Business, July, 1998 by Stephen Blakely

Medical costs outside the plan's network of providers generally are not covered. In this way, HMOs seek to avoid incurring costs for services that the plan or its medical providers regard as nonessential.

As managed-care plans grew dominant in the marketplace, less-restrictive options were developed to give patients more of a choice of providers. (See "Types Of Health-Insurance Plans,"on Page 20.)

The Cost Equation

Managed-care plans are widely credited with subduing the raging medical-cost inflation of the late 1980s by reducing unnecessary hospitalizations, forcing providers to discount their rates, and causing the health-care industry to become more efficient and competitive.

The result has been a revolution in the health-care sector. Traditional fee-for-service plans had 52 percent of the healthcare market in 1992 but had fallen to just 15 percent by last year as managed-care plans grew to 85 percent of the market.

But this rapid success laid the groundwork for the consumer discontent with managed-care plans. Because many managed-care health plans are provided by for profit companies, the companies' cost-control efforts have created widespread fear that they are more interested in saving money than providing health care.

Disgruntled patients and consumer-advocacy groups argue that managed-care plans in general--and HMOs in particular--often control costs by denying medically necessary services to patients, even in life-threatening situations, or by providing low-quality care.

One barometer of the public's mood is a scene in the recent Academy Award-winning movie "As Good As It Gets," in which a young mother curses her HMO for not providing effective care for her sick son. According to news reports, many audiences around the country cheered when the mother accused the HMO of caring more about profits than patients.

"Managed care is winning in the healthcare marketplace, but it is in danger of losing the battle for public opinion," says Drew Altman, president of the Kaiser Family Foundation, an independent, nonprofit foundation in Menlo Park, Calif., that conducts research on health-policy issues.

Increasing State Mandates

Because insurance is regulated primarily on the state level, state lawmakers were the first to react to the managed-care backlash. The political response has been the enactment of numerous state laws to regulate managed-care plans.

From 1993 to 1997, state health mandates jumped nearly 20 percent to 1,043 nationwide, according to data compiled by the Chicago-based Blue Cross and Blue Shield Association, the national association of independent Blue Cross and Blue Shield plan companies.

But state mandates don't apply to all employers. Under the Employee Retirement Income Security Act of 1974, a federal law known as ERISA, companies that "self-insure"--pay their employees health claims directly from company funds--escape state regulation and are exempt from state health mandates.

Nationwide, 39 percent of full-time private-sector workers with health insurance are covered by self-insured health plans, according to the latest estimates by the Employee Benefits Research Institute, a Washington, D.C., research group. That is up from 33 percent in 1989, says EBRI.