While the bloom hasn't yet faded from the managed-care rose, the garden has certainly grown rocky.
Though managed-care plans will continue to reap the benefits of hefty premium hikes and tighter cost controls in 2001, the industry's health could be complicated by threats of new federal regulation, improved bargaining power among providers, consumer distrust and a barrage of lawsuits targeting leading HMOs.
Citing increased healthcare spending and ballooning medical costs, health plans intend to boost rates for large employers by 10% to 15% this year, the largest price hike since the early 1990s. And in today's tight job market, employers are expected to swallow the higher rates, at least in the short term, rather than pare down the benefits they offer to attract and retain workers.
In addition, HMOs are finally starting to gain control over spiraling administrative and pharmacy costs, thanks to their growing use of the Internet and three-tier copayment plans, which shift more of the cost for brand-name drugs to patients. As a result, the managed-care industry should continue to enjoy increased profitability.
With the glaring exceptions of Aetna and PacifiCare Health Systems, most of the nation's leading health insurers saw fat earnings gains last year, some for the first time in years. Kaiser Permanente, for instance, is set to end 2000 on a profitable note after bleeding red ink since 1998, while analysts expect Oxford Health Plans to continue its remarkable, three-year turnaround by reporting a fivefold rise in net income to $170 million.
Not all health plans, of course, are enjoying such robust results. Aetna, for one, has a tough row to hoe this year after being waylaid in 2000 by soaring medical costs and lingering problems with past acquisitions. The reorganized company -- which officially shed its financial and international units on Dec. 13 -- will have to drop half of its low-paying Medicare members, raise premiums, slim down its workforce and mend fences with angry providers before it can regain its financial footing.
PacifiCare, too, faces a long road to recovery. Look for the Medicare HMO's financial troubles to persist at least two more years as it reduces its dependence on the government-funded program and takes on more shared-risk contracts with providers.
PacifiCare isn't alone in turning its back on Medicare+Choice. At least 117 other managed-care plans have either pulled out of the program completely or have drastically reduced their service areas, effective this month. That exodus, announced last July, left some 934,000 enrollees -- more than in the past two years combined -- scrambling for new coverage.
More departures this year could fuel a heightened consumer backlash against managed care. So too could decisions by more not-for-profit health plans to pursue for-profit conversions. Blue Cross and Blue Shield of Missouri changed its status in November by merging with its for-profit RightChoice subsidiary, and at least three other Blues plans have similar conversion deals in the works.
Meanwhile, PPOs will continue to gain ground in membership as HMOs struggle with a growing image problem. According to a recent opinion poll, more than half the American public has a negative view of HMOs. HMO enrollment growth is expected to slow during the next five years to about 5% from a peak rate of 18.5% in 1996, while PPO membership should climb at an average annual rate of 15%.
On the legal front, the managed-care industry enjoyed a major victory when the Supreme Court reaffirmed HMOs' modus operandi, upholding their right to encourage physicians to hold down costs through the use of financial incentives. But don't expect the lawsuits to abate; big-name trial lawyers and state attorneys general alike are looking to charge HMOs with everything from denying patients proper care to racketeering.
Managed-care plans also will face intense political pressure from both Washington and state legislatures as various patients' rights bills wend their way through the process. Bills in Congress would give consumers and doctors more power to make medical decisions and to sue their HMOs, but action is unlikely again this year.