HMOs nationwide are approximately 18% more cost-efficient than indemnity plans and 16% more cost-efficient than point-of-service plans, according to a study of health plan performance.
Hewitt Associates' Health Value Initiative-a study that measures cost-efficiency and quality of an array of health plan types-shows there is a strong correlation between the level of HMO penetration in a given region and how cost-effective those HMOs are compared with traditional indemnity plans.
For example, in the West, where HMOs have long been the leading form of health plan, the spread between HMO and indemnity plan cost-efficiency is 41%. In the East, a region where HMO penetration has skyrocketed recently, the spread between traditional indemnity insurance and HMOs is 24%. Meanwhile, cost-efficiency spreads in the Midwest, Southeast and Southwest ranged from only 10% in the Midwest to 21% in the Southwest, another region where HMO penetration is growing.
The Health Value Initiative, which began last fall when Hewitt gathered data on 2,200 plans used by 240 different employers, found that the cost-efficiency spread between POS plans and HMOs is only 2% closer than indemnity plans.
"If you look across the nation, there's very little difference between point-of-service and indemnity, which tells the employer that point-of-service is not extremely cost-effective," said Tom Beauregard, a principal at Hewitt Associates in Rowayton, Conn., who is overseeing the Health Value Initiative project.
"This result tells employers enamored with point-of-service that they must make sure that administration costs don't outstrip the discounts and utilization control of managed care," he said.
Beauregard also said the fact that HMOs recorded their highest cost-efficiency scores in regions with heavy managed-care penetration dispels the common argument that HMOs have only been cost-effective because they cover the best risks.
"I think we're finally able to quantify the fact that over major markets, there's a direct correlation between managed-care efficiencies and penetration. It's quite simple that HMOs become more effective as they gain enrollment, and with that comes clout over providers to negotiate discounts," Beauregard said.
By obtaining data for the study from virtually all major health plans and numerous large employers, including Minneapolis-based Dayton Hudson Corp.; Armonk, N.Y.-based International Business Machines Corp.; and Bethesda, Md.-based Marriott International, the benefit consulting firm was able to compute cost-efficiency scores for HMOs, indemnity plans, PPOs and POS plans in about 140 major healthcare markets. It did the same for quality but only for managed-care plans, where data necessary to measure quality were obtainable.
Among the 20 largest U.S. markets, Miami, New York and Los Angeles scored highest in terms of HMO cost-efficiency with scores 14.4% to 12.6% above the national average.
Quality and cost-efficiency scores were based on how HMOs stacked up against other types of competing health plans in individual markets.
Beauregard said the fact that New York, an expensive healthcare market, scored so well in HMO cost-efficiency is not as surprising as it may sound. "There are some very efficient plans in New York that dominate the market, and as they gain enrollment their leverage with providers continues to grow."
Other metropolitan areas that scored above the national average for comparative HMO cost-efficiency were, in order of performance, Dallas; Cleveland; St. Louis; Houston; San Francisco; Tampa, Fla.; Chicago; and Washington.
Large cities whose HMOs came in below the national cost-efficiency average included Boston, Minneapolis, Philadelphia, Phoenix and Seattle. "Minneapolis is more or less where managed care began. I think their low score reflects the fact that there really isn't any indemnity business left there, so there's very little risk and cost differential between whatever indemnity business still exists and managed care," Beauregard said.
For HMO quality, Seattle scored highest at 31.6% above the national quality average followed by Boston at 23.8%. Other cities with strong quality scores were Los Angeles, Minneapolis, Pittsburgh, San Diego and San Francisco.
Miami HMOs offset their leading cost score by posting the lowest quality score-30.7% below the national average.
"Once again, if you look at the more mature managed-care markets, that's where the higher" cost and quality scores are, Beauregard said. "These places have plans with high enrollment and mature provider relationships. These HMOs can drive down utilization rates by influencing physicians."
In overall quality, HMOs performed better than PPOs and POS plans because HMOs can better influence clinical management and utilization rates. Key findings on quality include:
The number of pregnant women enrolled in HMOs, PPOs or POS plans that obtained prenatal care ranged from 40% to 100% by plan. The average was 86%.
The percentage of covered children under the age of 2 who were properly immunized ranged from 35% to 97%, with an average of 73% satisfying criteria.
The average waiting time for a routine physician appointment was one to 21 days. The average was five to six days.
Mammogram screening rates ranged from 28% to 92%, with a national average of 67%.
Hewitt will complete the final phase of the project in August, measuring employee satisfaction levels with the plans already studied. The national employee satisfaction study will gauge one employer group's satisfaction ratings against others.
Hewitt did not disclose how specific health plans scored by vicinity and is not divulging to the public the scores of the plans of the companies that participated.