HMO enrollment decline signals shift by employers

In his annual Minnesota Managed Care Review report, health care analyst Allan Baumgarten, notes that HMO enrollment has been declining for years.

"It peaked in about 1998 at 1.4 and a half million and has gone more or less straight down since then. And that's due mostly to changes in how employers are buying their health insurance," he says.

After years of double-digit health care inflation, Baumgarten says many employers decided they could no longer afford the comprehensive benefit plans that are characteristic of HMOs. Instead, a growing number of employers have switched to plans that they self-fund. In these plans, the employer doesn't pay premiums directly to an HMO anymore. They will often contract with an HMO to administer the plan for its employees.

"I don't think it's a change for the better. I don't know that it's a change for the worse in any sense. It's just something that you want to keep an eye on and see if it does in fact have any potential to hurt the public," Baumgarten says.

According to Baumgarten, bypassing traditional HMO coverage allows employers to pick cheaper insurance products that have fewer benefits and demand more cost-sharing from employees. While that might not sit well with some employees, from an employer's perspective, it's one way to get a handle on rising health care costs.

Julie Brunner, Executive Director of the Minnesota Council of Health Plans says this new insurance shift has actually been essential to retaining strong employer-based coverage in the state.

"They're trying to wring every dollar out of the health care expenditure that they can. And by moving to indemnity and self-funded plans, the employers have flexibility to design their own plans, where in the fully insured HMO model the coverage is really mandated in state law," she says.

Brunner says Minnesota's numerous health coverage mandates add significantly to the cost of insurance.

But others aren't so sure it's a good idea to lose some of those state regulations over employers. Stephen Parente, a health care economist who teaches at the Carlson School of Management at the University of Minnesota, is one of them. "The risk with that is that if there is any major downturn in the economy as there was at the beginning of the 90s, you could see much less coverage from some of those employers," he says.

Parente says as of the year 2000, more than 50-percent of Americans got their private health insurance coverage through self-insured employers which are not regulated by states.

Yet when he looks at the new health plans he's seen in Minnesota to date, Parente is generally impressed. He says many have retained some of the best aspects of managed care including preventative care.

"I am optimistic about where the market is going. I think that there is a generational shift that I think will recognize that catastrophic insurance and good prevention at the end of the day is a good bargain for this system," he says.

Meanwhile no one is suggesting that HMOs are going the way of the dinosaur. Clearly there are still employers who believe it's the best insurance for their employees. With state programs, HMO coverage is actually growing. Currently state-subsidized plans make up about half of the HMO market in Minnesota.

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