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

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

Healthcare Choices Individual Health Insurance Group Health Insurance**

Health Plan Choices Government sponsored plans –Medicare –Medicaid Indemnity (fee-for-service) Managed Care Plans

Major Types of MCOs Health Maintenance Organizations (HMO) Preferred Provider Organizations (PPO) Point-of-Service (POS) Plans

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

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

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

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

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

HMO Pros and Cons 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

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

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)

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)

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)

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

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

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

References 1.Rich RF, Erb CT, Gale LJ. Judicial Interpretation of Managed Care Policy. The Elder Law Journal vol Sept 13: Stern C. The Fundamentals of Healthcare Benefits – The Employer Perspective Jan. [Pending publication] 3.American Heart Association, Managed Care Plans. Available at: ntifier= ntifier= Wikipedia Encyclopedia. Search terms: Health Maintenance Organization, ERISA. Available at: