Health Maintenance Organizations (HMO’s)

1. Health Maintenance Organizations (HMO’s) Sandy H. Yoo May 5, 2006

2. 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

3. 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

4. Healthcare Choices • Individual Health Insurance • Group Health Insurance**

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

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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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)

15. 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)

16. 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)

17. 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

18. 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

19. 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

20. 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