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Health Maintenance Organizations (HMO’s). Sandy H. Yoo May 5, 2006. The Rise of Managed Care Organizations (MCO). The cost of healthcare has skyrocketed in the last few decades The components of healthcare have become increasingly complex

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The rise of managed care organizations mco l.jpg
The Rise of Managed Care Organizations (MCO)

  • The cost of healthcare has skyrocketed in the last few decades

  • The components of healthcare have become increasingly complex

  • Hence, the rise of MCOs to control costs and coordinate healthcare delivery


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MCOs

  • Health care systems that coordinate the financing and delivery of health care services to covered individuals

  • The goal is to control cost without sacrificing quality

  • In 2004, over 177 million Americans were enrolled in a MCO


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Healthcare Choices

  • Individual Health Insurance

  • Group Health Insurance**


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Health Plan Choices

  • Government sponsored plans

    • Medicare

    • Medicaid

  • Indemnity (fee-for-service)

  • Managed Care Plans


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Major Types of MCOs

  • Health Maintenance Organizations (HMO)

  • Preferred Provider Organizations (PPO)

  • Point-of-Service (POS) Plans


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Features of an HMO

  • HMO’s contract directly with physicians, hospitals, and other healthcare providers

  • “Network Providers” offer their services at a discounted rate

  • In exchange, HMO’s offer referrals

  • HMOs emphasize preventative care


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Capitation

  • HMO’s spread risk with network providers

  • Physicians and hospitals receive a fixed amount per member per month (PMPM)

  • If the cost of care is more expensive than the fixed PMPM, then providers must absorb the losses


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Utilization Review

  • Utilization is expressed as a number of visits or services or a dollar amount per member per month (PMPM)

  • Intended to identify providers providing an unusually high amount of services

  • Cost-control and efficiency measure


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HMO Members

  • Members pay a monthly premium, but little to no copay (~$5-10)

  • Members select a primary care physician (PCP)

  • Members can only see providers in the HMO network

  • Members can only see a specialist if authorized by their PCP


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The Gatekeeper

  • PCPs are generally:

    • family doctors, internal medicine docs, pediatricians and general practitioners

  • PCPs are the gatekeepers that provide, coordinate, authorize all aspects of a member’s health-care

  • Members generally must see PCP first


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PROS

Comprehensive range of health benefits for lowest out-of-pocket expenses

Little to no copay

CONS

Most restrictive health plan

Can only see in provides in the network

Can only see a specialist if referred by PCP

HMO Pros and Cons


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Rules & Regulations

  • State-licensed MCOs are regulated under state law

  • Self-funded (employer) health plans are covered under federal laws

  • Currently, there is a lack of clarity, federal vs. state, as to who regulates MCOs and HMOs


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State Laws

  • Each state has laws that require state-licensed MCOs to offer or include coverage for certain benefits or services

  • Health plans are covered under the rules and regulations of each state’s Department of Insurance (DOI)


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Federal Laws

  • Employee Retirement Income Security Act of 1974 (ERISA)

  • Health Insurance Portability and Accountability Act of 1996 (HIPAA)

  • Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

  • Mental Health Parity Act of 1996 (MPHA)


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Federal Laws

  • Newborn’s and Mothers’ Health Protection Act of 1996 (NMPHA)

  • Family and Medical Leave Act (FMLA)

  • Pregnancy Discrimination Act (PDA)

  • Age Discrimination in Employment Act (ADEA)

  • Omnibus Budget Reconciliation Act of 1993 (OBRA ’93)

  • Women’s Health and Cancer Rights Act (WHCRA)


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ERISA

  • Written to ensure uniformity in the administration of pension plans and retirement benefits

  • ERISA does not require employers to provide health insurance

  • However, ERISA regulates health plans already established


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HMO vs. PPO

  • Similar to HMO, PPOs make contracts with providers

  • Members do not have a PCP

  • Members do not have to use in-network provider, but they receive financial incentives if they do

  • Financial incentives are lower deductible and copays

  • More flexible, but higher out-of-pocket expenses


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HMO vs. POS

  • Members can choose either HMO or PPO at the time of service

  • PCPs are encouraged but not required

  • Members who use PCPs receive lower copays and/or deductibles

  • Members can see out of network providers

  • Ultimate flexibility, but higher out-of-pocket expenses


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References

  • Rich RF, Erb CT, Gale LJ. Judicial Interpretation of Managed Care Policy. The Elder Law Journal vol 13. 2005 Sept 13: 86-89.

  • Stern C. The Fundamentals of Healthcare Benefits – The Employer Perspective. 2005 Jan. [Pending publication]

  • American Heart Association, Managed Care Plans. Available at: http://www.americanheart.org/presenter.jhtml?identifier=4663

  • Wikipedia Encyclopedia. Search terms: Health Maintenance Organization, ERISA. Available at: http://en.wikipedia.org/wiki/Main_Page


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