Backlash Against HMOs Caused Few People to Bolt from the Health Plans

For Release

March 24, 2005

A backlash of public opinion against health maintenance organizations in the late 1990s did not result in large numbers of Americans switching to health insurance plans that offer greater consumer choice, despite predictions that many would do so, according to a RAND Corporation study issued today.

Even in parts of the United States where consumers have the greatest ability to switch health plans, the number of people leaving HMOs was relatively modest, according to the study by RAND Health researchers published in the winter edition of the journal Inquiry.

“Consumers did not express their dissatisfaction with health maintenance organizations by voting with their feet—at least not in large numbers,” said M. Susan Marquis, a RAND economist and one of the authors of the study.

The RAND study is one of the first to provide a national picture of HMO enrollment trends in the period before and after the managed care backlash that occurred in the late 1990s.

“The dissatisfaction with HMOs arose when health care prices were rising very slowly,” Marquis said. “The health cost increases that accelerated in the late 1990s may have deterred a retreat from tightly managed care by health insurance purchasers wishing to control costs.”

Researchers found only a small decrease in HMO enrollments after the backlash among consumers who had private health insurance. Enrollment in HMOs among Medicare recipients was unchanged in the period.

However, HMO enrollment surged among people enrolled in Medicaid, the government insurance program for the poor. Researchers said that trend indicates the possibility of a two-tiered system in which low-income beneficiaries have less choice than the privately insured.

Marquis and her colleagues from RAND Health examined a number of different sources of information from government and private groups to provide a national picture of trends in HMO enrollment from 1994 to 2001.

The early 1990s witnessed an explosion in the growth of HMOs, fueled primarily by employers who embraced the health plans as a way to control rising medical costs. While HMOs and related plans accounted for just 18 percent of job-based health insurance enrollment nationally in 1988, the proportion rose to 51 percent by 1998.

But as HMOs grew, consumers expressed concerns that the managed care plans did not always provide adequate access to health services and many people called for increased regulation. This backlash caused some experts to predict that consumers might flee HMOs in favor of health plans that provide more traditional approaches.

Researchers found that during the post-HMO backlash period that began in 1998, HMOs did not lose substantial market share and were more likely to maintain their presence in those regions with high growth in costs and those regions with greater experience with managed care.

“Other studies have suggested that health plans reacted to the backlash in the late 1990s by changing their policies to become less restrictive,” Marquis said. “These changes may have addressed consumers’ concerns or consumers may have stayed put as the cost of health care began to rise steeply at the end of the 1990s.”

Support for the study was provided by the Robert Wood Johnson Foundation and the Agency for Healthcare Research and Quality, which is part of the U.S. Department of Health and Human Services.

Other authors of the study are Jose J. Escarce of RAND and the David Geffen UCLA School of Medicine; and Jeannette A. Rogowski of the School of Public Health at the University of Medicine and Dentistry of New Jersey, who is a former RAND researcher.

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