In a strong sign that traditional managed care has had its day, Oregon's largest health insurer will exit the HMO business entirely by the end of 2004, opting instead to steer its members into a new consumer- driven alternative.
Regence Blue Cross and Blue Shield of Oregon's decision to phase out the commercial arm of its Regence HMO unit over the next 15 months was prompted largely by consumers' growing demand for greater choice and fewer coverage restrictions, officials said. The Portland-based company's Medicare HMO business will remain in place.
According to the Oregon Department of Consumer and Business Services (DCBS), Regence HMO had 108,100 commercial members and 67,600 Medicare members as of March 31. Regence officials, however, said the HMO has 130,000 commercial members. At deadline, officials had not explained the discrepancy.
"We've seen a considerable decline in our HMO membership as compared to several years ago," said Regence spokeswoman Angela Hult. "Maintaining a large portfolio of HMO plans doesn't make sense from an administrative standpoint, especially since many of our competitors no longer offer HMO coverage."
Indeed, total enrollment in Regence HMO Oregon plunged 33% from 262,758 members at the end of 2000 to 175,700 members by March 31, according to the state DCBS.
As a result, the HMO lost $1.6 million on revenue of $549.6 million last year, compared with net income of $26 million on revenue of $560.6 million in 2001, according to the National Association of Insurance Commissioners. Commercial members accounted for 55% of the HMO's 2002 premium revenue, NAIC figures show.
In place of its HMO, Regence is rolling out a suite of consumer-driven health plans, called BlueChoices, designed to curb rising medical costs by giving members greater responsibility over their healthcare spending.
Typically, consumer-driven plans pair a high-deductible, low-premium insurance policy with a personal spending account funded by annual contributions by the member's employer. Once members exhaust their spending account, they are responsible for paying the deductible before their insurance coverage kicks in.
With BlueChoices, employers can choose from 36 benefit designs that range from plans with generous benefits and broad PPO networks to leaner plans with fewer benefits, higher deductibles and smaller PPO networks. The largest network consists of 9,500 doctors and hospitals, while the smallest has 2,000 providers.
"Our customers are concerned about the rising cost of healthcare and the ever-increasing premiums necessary to cover those costs," Hult said. With BlueChoices, "employers will have more control over the premiums they pay by mixing and matching the benefits and networks to achieve the best fit for their employees."
Hult acknowledged that Regence could lose revenue in the short term by scrapping its HMO, but she added that its bottom line is certain to improve as the consumer-driven plans kick in. Regence HMO accounted for about 41% of the company's $1.34 billion in total revenue last year, according to NAIC figures. The 1.1 billion-member insurer earned $10.4 million in 2002, up from a net loss of $6.1 million in 2001.
"While it's possible that our current HMO customers will go elsewhere, we're very confident they will embrace our new products, which were designed in direct response to what our customers have been asking for," Hult said.
Regence's move mirrors a trend among insurers, which are abandoning HMOs to focus on less restrictive PPOs and consumer-driven options. According to InterStudy Publications, the number of HMOs nationwide has fallen to 454, from 651 in January 1998.
Aetna, for example, has closed 27 HMOs during the past year while expanding its HealthFund consumer-driven plan. Last month, the Hartford, Conn.-based insurer announced it would begin offering HealthFund to 3 million federal employees in eight states and Washington.
Subsequently, nationwide HMO enrollment has dropped for the fourth straight year, to 71.8 million in January from a peak of 81.1 million in January 1999, InterStudy reports. In Oregon, the five largest HMOs-Kaiser Permanente, Regence HMO, Providence Health Plans, PacifiCare Health Systems and Health Net-logged a collective 10% drop in enrollment last year, to a combined 869,600 members, according to the DCBS.
"A lot of (the decline) stems from HMOs' steep premium increases in recent years," said Tammy Lauer, InterStudy's director of research. "These days PPOs cost almost the same as HMOs, and employers are willing to pay the tiny difference to keep their employees from complaining about having too many restrictions."
Meanwhile, consumer-driven plans are gaining traction as employers scramble for new ways to hold down soaring benefits costs (March 10, p. 30). According to a survey released last month by the Health Insurance Association of America, 13% of companies with more than 100 employees said they were likely to offer a consumer-driven plan in 2004, and another 27% said they intend to do so within the next five years.
The consumer-driven model represents the latest stage in the evolution of health insurance, which first retreated from fee for service in the 1980s but now is steadily relinquishing the managed-care cost controls that were popular in the 1990s, said Tony Kotin, a consultant with Mercer Human Resources Consulting in Chicago.
While managed care succeeded for a time in keeping a lid on costs, it also caused employees to lose touch with the true cost of care, Kotin said. Now that premiums are rising, employers are trying to re-sensitize workers. "Consumerism is now seen as the only remaining weapon available to combat the American public's insatiable appetite for healthcare services," Kotin said.