Sept. DTR Anaylsis: Population differences key in to the HMO trends

September 1, 2004

In the highest-enrollment states, not only are there higher populations generally, but the population also is more concentrated, and HMOs operated there successfully for longer periods before the anti-managed care movement began to really get legs, according to one expert.

In the highest-enrollment states, not only are there higher populationsgenerally, but the population also is more concentrated, and HMOs operatedthere successfully for longer periods before the anti-managed care movementbegan to really get legs, according to one expert.

"California, for example, historically was a leader in the foundingand development of HMOs," says Cynthia Marcotte Stamer, a partner withEpstein Becker Green Wickliff & Halls' national healthlaw practice."The concentration of facilities, providers and populations also historicallyallowed California to achieve better the underwriting and operational assumptionsnecessary to cost-effectively provide a range of care to concentrated populations,"she says. "The Knox-Keene legislation formalized the existence of HMOs.The population in California also has a historically positive experiencewith Kaiser and other HMO and managed care arrangements."

Other states, such as Texas, and those in the Midwest, were relativelylatecomers to the HMO marketplace. PPO enrollment always has exceeded HMOenrollment in these regions for a variety of reasons, according to Stamer."Part of this likely is attributable to population differences thataffect the viability of the HMO model in a wide number of states,"she says. "Their populations are more geographically disbursed, makingit more difficult to achieve the concentration of facilities and enrollmentsnecessary to enroll large populations. Their populations, as a whole, alsohave exhibited more attitudinal resistance to closed model HMOs. Overall,people in these lower enrollment states have tended be feel less secureabout giving up their choice of physicians and facilities attendant to HMOs."

These attitudinal differences are reflected in the early enactment instates like Texas of patient choice legislation, protecting the right ofeven HMO enrollees to opt out at the point of care. "The enactmentof these and other 'anti-managed care' regulations in Texas and elsewherein recent years has further undermined the viability of the HMO models formany vendors by restricting their ability to operate their care deliverysystems in accordance with the assumptions of the HMO model," Stamersays.

In recent years, historically high-enrollment states also have seen changesin their enrollment in HMOs, as well as in the historical providers. "Theexperience of many states, including California and Hawaii, has been thathealthcare inflation catches up with HMOs," Stamer says. "In recentyears, premiums and costs for HMOs has risen in many areas at or above therate of costs for PPO and other types of plans. HMOs also are subject togeneral healthcare inflation. The inflation tends to undermine the stabilityof their populations, undermining their ability to realize the anticipatedoffsetting savings that most HMO business models assume."

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