Health Maintenance Organizations

(HMO’s)Sandy H. YooMay 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 ConsPROS• 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

References1. Rich RF, Erb CT, Gale LJ. Judicial Interpretation of

Managed Care Policy. The Elder Law Journal vol 13. 2005 Sept 13: 86-89.

2. Stern C. The Fundamentals of Healthcare Benefits – The Employer Perspective. 2005 Jan. [Pending publication]

3. American Heart Association, Managed Care Plans. Available at: http://www.americanheart.org/presenter.jhtml?identifier=4663

4. Wikipedia Encyclopedia. Search terms: Health Maintenance Organization, ERISA. Available at: http://en.wikipedia.org/wiki/Main_Page