Health Care Utilization in Employer Plans with Preferred Provider Organization Options

Using data from five employers who were among the first to offer their employees preferred provider organization (PPO) options, this study estimates the PPOs' effects on participants' use of health care services in general and mental health care services in particular. The employers offered different incentives to use PPO providers: two waived all cost-sharing, one waived the deductible, one waived the coinsurance, and one cut the coinsurance for physician services in half. Unlike some other PPO plans, however, none covered additional services in the PPO. The research was based on data from personnel records, medical claims records, and an employee survey. Approximately two years after the PPO options were first offered, they had attracted 24-65 percent of the employees and covered dependents enrolled in indemnity plans. Among users, there was a consistent pattern of lower levels of use, as measured by total charges and reimbursements. Only three employee groups were large enough to warrant a separate analysis for mental health services. In the first post-PPO year, two of the three groups showed a lower propensity to use mental health services in the PPO, but the difference all but disappeared by the second year.