Managed Care-Chapter II-Final Report

Regulation and Oversight of Managed Care
Chapter II - Profile of Connecticut HMOs

Connecticut=s managed care industry is changing so rapidly, it is difficult to identify the industry=s participants at any given time. Connecticut currently has 16 fully licensed HMOs. Two of these -- Medspan and NYLCare -- were licensed in May 1996, while Yale Preferred was approved in December 1995. Two other HMOs, Healthsource, and Wellcare, became licensed during 1995 but are just beginning to become operational. Blue Cross/Blue Shield has now consolidated its three preceding HMOs -- Community Health Care Plan, Constitution Health Care, and Enterprise -- into one line of HMO business under BlueCare. Aetna and U.S Healthcare finalized a well-publicized but controversial merger of their HMO business in July 1996. Revenues for all Connecticut HMOs for 1995 totaled slightly more than $1.5 billion.

This chapter provides a brief profile of active HMOs in Connecticut. Table II-1 offers summary statistics of Connecticut=s HMOs that had active enrollment during 1995. The profile begins in 1991 (or date of licensure, if after 1991). Most of the profile concentrates on financial statistics, but the final piece of data for each HMO listed is a utilization measure. The statistics were compiled by A.M. Best Company, which collects information on insurance companies and rates their financial condition, and are based on data from each HMO=s annual financial reports filed with the Insurance Department.

The HMO companies are listed across the top of the table, (along with their tax status) and the statistics are down the columns under each company=s name. The first row in each column lists each HMO=s year-end enrollment. The second row contains the average per-member per-month fee for all the plans the HMO offers, which is based on total premiums divided by total members divided by 12. Worthy of note is that 1995 monthly rates or fees dropped from their 1994 levels for seven of the HMOs profiled.

The third row lists the percentage of premiums spent on health care, the Amedical loss ratio.@ As the table shows, for most HMOs this ratio is typically above 80 percent. Exceptions are the medical loss ratios for: Prudential from 1991 through 1993; U.S. Healthcare for 1993 and 1994; Physicians Health Services for 1994 and 1995; Suburban for 1991,1992, and 1993; and Cigna and MD Health for 1995.

The percentage of premiums spent on administration is listed on the fourth row. In general, the percentage of premiums devoted to administration costs, which includes HMO staff compensation, operating expenses, and marketing, has been growing since 1991.

The final financial statistic provided in the table is the percent of gross profits, which A.M. Best measures by taking income (before taxes and extraordinary items are subtracted) and dividing by total revenue. As the table shows, the profitability levels are typically below 5 percent, except for Prudential from 1991 through 1993 corresponding to the years of the company=s low medical loss ratios.

The last row for each year includes a measure of utilization for each company -- the number of physician visits per 1,000 members per year. The table results show considerable variation in the range for this ratio -- from about 2,000 visits a year for some companies to more than 5,000 visits for others. In other words, in some plans each person sees a doctor an average of twice a year, while in other plans the average per person is about 5.5 visits.

Comparison Between Connecticut And Other States= HMOs

The committee also examined Connecticut=s HMO experience in comparison with other states. Several components were examined and the data are presented in Table II-2 on the following page. The averaging done for each state weighted each company=s market share of the state=s HMO population and premiums. However, because in some states companies are writing much more Medicare business than Connecticut HMOs, and those rates and utilization figures are typically higher, the committee used fees and hospital days with the Medicare business removed. The physician visit measure is not reported by type of population and therefore reflects visits by all members.

Components Examined

As the table shows, Connecticut=s experience with HMOs appears comparable with the other states examined. A summary of the categories in the table, by column, is discussed below:

Fees. Connecticut ranked 4th-highest of the nine states in terms of average monthly fees charged for each member covered. California had the lowest average fees, at $111 and Maryland the highest, at $160; Connecticut=s average monthly fees were $134.

Medical loss ratio. The medical loss ratio is the percent of premium dollars spent on health care. New Jersey=s HMOs spent the least on health care, an average of 78 percent of all premiums collected, while Minnesota=s HMOs spent 93 percent. Connecticut=s HMOs,_ by comparison, expended 84 percent of their premiums on health care in 1995. Some states, including Connecticut, set a floor for medical loss ratios for Medicare Supplement policies. Other states have discussed setting a similar standard for loss ratios for HMO business, but none has yet done so. In Connecticut, the medical loss ratio for Medicare Supplement plans is statutorily set at 65 percent, a standard that all Connecticut HMOs would have surpassed for 1995.

Table II-2. Comparison of State HMO Averages for 1995

State

(1)

Average Monthly Fee

(2)

Average Medical Loss Ratio

(3)

Average Visits to Physicians per/1000

(4)

Hospital Days per/1000

(5)

Average

Profits

1994-95

(6)

Tax Status:

%HMOs Non-Profit

$111

85.4%

3,621

189

3.3%

26%

$134

84.2%

3,608

281

1.8%

44%

$128

86%

4,181

334

2.4%

$151

90.1%

5,348

389

3.4%

60%

$160

85.3%

4,375

268

3.6%

38%

$132

93.3%

4,064

268

3.2%

100%

$142

77.6%

3,831

343

6.5%

18%

$128

88.3%

4,071

320

3.7%

55%

$132

91%

3,871

238

2.4%

13%

Source of Data: Best=s Managed Care Reports, 1995 and 1996 Editions

Physician visits. A criticism of HMOs is they control health care utilization, including doctor visits, in order to save money. Certainly visits to physicians for each 1,000 members is a gross measure of how much members actually use this service. However, the results in this category lead to two conclusions. First, there is considerable variability among states, just as there is with individual plans that make up each state=s average. Second, the results in column (3) in the table indicates that in 1995 no state reported an average of less than 3,600 physician visits per 1,000 members. The average for HMOs in Connecticut, California, New Jersey and Texas ranged from 3,608 visits per 1,000 members to 3,871. In three other states, enrollees visited physicians between 4,000 and 4,300 times per 1,000 members, while Massachusetts HMOs averaged more than 5,000 visits per 1,000 members. (One HMO in Massachusetts registered a rate of more than 10,000 visits to physicians per 1,000 members, double any other HMO=s).

Hospital days. Another measure of utilization the committee compared is length of hospital stays. Variability also exists, to a lesser extent, with this measure as displayed in column (4) of the table. California ranked the lowest in hospital days used -- 189 days per 1,000 members, or 0.19 days for every member. Massachusetts, on the other hand, had the highest hospital usage with every 1,000 members using 389 days, or 0.39 days for each member. Connecticut ranked 5th-highest on hospital usage, with a ratio of 281 days per 1,000 members or .28 days per member.

Profitability. There are different ways to examine how profitable a company is. The program review committee used gross profitability, one of the measures compiled by A.M. Best Company, which collects information on insurance companies and rates their financial condition. Gross profitability measures the percent of income before taxes (but after all other expenses have been paid) as a percent of total revenues. The program review committee averaged this measure for both 1994 and 1995 for all states= HMOs, to lessen some of the one-year variability in profits. As the results in column (5) of Table II-2 show, Connecticut=s HMOs had the lowest profit levels of the nine states compared with an average two-year profit level of less than two percent. New Jersey=s HMOs experienced the highest average profit levels of 6.5 percent over the two years.

Tax status of HMOs. Often critics of managed care claim HMOs deny needed health care services to improve their profits for shareholders or to increase executive salaries. Not all HMOs are for-profit, but increasingly many are. Especially as federal funds to establish and expand HMOs have dried up, these entities depend on investors to raise capital. The tax status of the HMOs for the states was compared and the results are shown in the extreme right hand column of Table II-2. Except for Minnesota -- which has only non-profits because for-profit HMOs are banned by law -- and Florida -- in which all the HMOs are for-profit -- all of the states have a mixture of both types of entities.

An analysis of tax status and its impact on the way HMOs do business is shown in Figures II-1, II-2, II-3 and II-4 . The program review committee recognizes the data are only for 1995 and for some states the data are based on very few HMOs of one type or the other. Therefore, caution against reaching any hard conclusions based on this. However, it does appear there are some differences in HMOs= fees, medical loss ratios, hospital stays, and the number of times members visit physicians, depending on whether the HMO is a for-profit or not, but the differences vary among measures and states.

Figure II-1 shows that in five of the seven states with both types of HMOs, non-profits had higher average fees. In two states, California and Massachusetts the difference in fees was substantial, while in the other states the gap was not as great. In New York and Texas, the for-profit companies had higher fees. Figure II-2 shows that in four of the seven states with both types of HMOs, non-profits expend a greater portion on health care, while in Massachusetts and Texas, the for-profit companies spent a higher percentage.

Figure II-3 shows that in five of the seven states with both types of tax-status HMOs, members of for-profits incurred slightly longer hospital stays than those members enrolled in non-profits. However, by the other utilization measure -- physician visits -- non-profit members had higher utilization. As Figure II-4 shows, in six of the seven states with both profits and non-profits, the members of non-profits saw their physicians more than those in for-profit organizations.

Analysis of the state comparative data are summarized as follows:

C non-profits expend a higher percentage to health care expenses in four of seven states;

C members of non-profit HMOs typically experienced more physician visits than members of for-profits in six of seven sta

C members of for-profit HMOs stayed somewhat longer in hospitals than members of for-profit HMOs in most of the states compared; and.

C non-profits charge higher monthly fees than for-profits in five of the seven states with both tax status HMOs.

Thus, the committee finds there may be some variations between profits and non-profits, but the differences between the two vary from state to state and measure to measure. In some states, members of non-profits may use more services, but they also may incur higher fees. The program review committee believes that purchasers should be allowed to decide which type of plan is right for them by judging their utilization statistics compared to the fees charged, and therefore does not recommend any standard for medical loss ratio, hospital stays, or other utilization measures, nor does the committee recommend requiring only one tax status for HMOs.

The committee concludes, however, that purchasers need to be provided with this type of information so that they can make informed decisions based on comparative data. Therefore, the program review committee believes the Department of Insurance should compile utilization measures, profitability data, and tax status for all Connecticut health plans in the report card for consumers as outlined in a recommendation in Chapter IV.

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