September DTR Analysis: PPO offerings

September 1, 2005

Plans and enrollees reach compromise

The number of plans offering benefits through PPOs demonstrates the compromise that plan sponsors and enrollees have reached, balancing cost control with provider choice, according to one industry expert.

"On one hand, plan sponsors can control their costs by requiring enrollees to either use contracted providers or pay a greater portion of the cost of care," says Tom Bixby, a senior counsel with Neal, Gerber & Eisenberg's Health Law Group. "On the other hand, enrollees enjoy much greater choice of providers than they might in a more restrictive network, such as a HMO. As the cost of healthcare continues to escalate, plan sponsors are likely to increase enrollee cost-sharing, but continue offering the flexibility of PPOs."

According to Bixby, health plans have reacted to the increased cost of mental health benefits by furnishing coverage through PPOs. In addition, The Mental Health Parity Act generally requires group plans offering mental health benefits to provide more comprehensive benefits than in the past.

Bixby expects health plans to increasingly move away from open formularies for prescription drug benefits. "First, the relentless growth in the cost of prescription drugs will drive plans to find ways to control costs," he explains. "Second, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 [MMA] will encourage the use of formularies. The MMA permits health plans to provide prescription drug coverage to Medicare beneficiaries beginning in 2006 and permits-though does not require-health plans to use formularies and requires them to implement various other cost-containment strategies. As health plans, providers, and enrollees adjust to using closed and other restrictive formularies, they will become more common," he says.

On the horizon

"As prescription drug costs become a larger portion of the healthcare pie, enrollees can expect to see their options for prescription drugs face the same conflicting pressures that enrollees experienced with physician and other provider choice in the 1980s and 1990s," Bixby says. "Health plans will restrict options by moving toward closed formularies, just as they moved toward HMOs and closed provider networks years ago. When enrollees-and providers-express frustration with their limited options, health plans will offer restricted networks, preferred lists, and other options that offer greater flexibility in return for greater cost sharing. Indeed, this process is already well under way, as many sponsors offer multi-tiered prescription drug plans, exchanging cost sharing for consumer choice."