This post would be a lot easier to write if I could just say ‘California’ instead of the ‘west’ as I think it really is mostly about California, but I must be faithful to the truth and not take liberties. But if you want to think ‘California’ as you read this, you would probably be mostly right.
An obtuse preamble, you are thinking. Sorry about that. Let’s get to the story.
Mercer, the employer benefits firm, released an interesting note from their annual survey of employer-sponsored health plans. Historically, and this may surprise people not in ‘the west’ (wink), the premium on HMO plans has been higher than for PPO plans.
This makes sense when you think about a couple of things. Coverage is generally a bit richer for the HMO plans and the employee cost sharing (co-pay, deductible) usually ranges from nothing to not much. Both of these factor into higher premiums.
But, in 2017, for the first time the HMO cost dipped a smidge below the average PPO cost. Then in 2018, it dropped more and was almost $1,000 per employee less. The Mercer folks were curious as to what was going on and so was I. In fairness, they were curious first and mine just came from reading their brief.
Initial thoughts were that HMOs draw younger, healthier populations, which they do – when you don’t use a lot of healthcare, the HMO restrictions are less bothersome. But that has always been the case, so that does not explain the recent move in relative price.
Another thought was the loss of market share. In 1996 33% of the covered employees were in an HMO. In 2018, that was down to 14%. Though not the answer, it pointed to it.
That contraction in market share was not equally distributed. In the west, HMO coverage has actually grown with 38% of employees now covered by this type of plan, but everywhere else is down to about 10%, plus or minus a point or two. Talk to anyone in the west, especially the far west, and they act like most patients are in an HMO. Everywhere else, say ‘HMO’ and you may get asked, ‘Didn’t those get outlawed or something?’
OK, so HMOs are concentrated in the west. How has that brought down the national average premium so much? See, you are now curious as well, aren’t you?
The simple answer is out west, they do the HMO thing differently. They more often use a ‘staff model’ with a capitation payment system (providers take risk and keep the upside savings), where the rest of the country treats HMOs like one more health plan, paying providers via a traditional fee-for-service arrangement. Since the west is so much of the market, they bring down the entire average.
The take-aways? Reimbursement models matter; size and scale and experience and accumulated competence in a given model matters; culture and consumer expectations matter.
And ‘the west’ is different than the rest of us. But you knew that.
Quick reminder: Join me on Thursday, August 15 at 11:30 Eastern for my webinar, ‘Top 2 Ways to Control Your Destiny – How Medical Practices Grow Fiercely Independent in 2020.’
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