Legislative Program Review and Investigations Committee

Regulation and Oversight of Managed Care
Chapter 1

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Regulation and Oversight of Managed Care
Chapter I - Background

 

Over the past 10 years employers have increasingly turned to managed care as a brake on their rapidly spiraling health care costs. The failure of any national health care reform in 1994 accelerated their movement to managed care plans. Government too has now begun enrolling its own employees, as well as Medicaid and Medicare clients, to slow rising costs of health care benefits.

Definitions

There is no single definition of the term managed care. Managed care is on a continuum, with a number of plan types offering an array of features that vary in their ability to balance access to care, cost, quality control, benefit design, and flexibility. Some of the common types of managed care plans are:

• health maintenance organizations (HMOs) which provide a pre-arranged set of basic and supplemental medical services to an enrolled group, and patients are restricted to providers in the network;
• preferred provider organizations (PPOs) refers to a system where a third party (like an insurer or employer) negotiates discounted rates for services for those enrollees in that plan, but insured patients can see other providers at a higher cost; and
• point-of-service plans (POS) whereby members receive care from participating providers, but have the option of getting care outside the network, usually at higher cost to the member through deductibles and co-pays.

 This list is certainly not exhaustive of the types of managed care organizations.  They continue to evolve, with components from one type of plan appearing in others and new features continually being developed.

 Trends in Coverage

 Managed care is relatively new, and at this point it is difficult to gauge what impact it is having on the availability of  health care coverage for Connecticut residents.   This chapter compares trends in health care coverage in Connecticut with national trends between 1992 and 1995.  The results are shown in Figure I-1.  In addition to comparing Connecticut=s uninsured population with the nation=s, the committee also contrast state percentages between 1992 and 1995 with those in other states and displays the results in Table I-1.

Committee analysis.  The committee reaches several conclusions from the data. Connecticut's uninsured population -- 10.1 percent in 1995 -- continues to be a smaller percentage than the nationwide average of about 17.5 percent. The most recent Connecticut data show a reversal from the 1993 and 1994 trend of growing uninsured. In 1995, the proportion of uninsured in the state was almost as low as its 1992 level. These data buck the national phenomenon of the growing uninsured, and appear to have several causes. The first reason is due to an increasing population receiving Medicaid coverage. In 1994, there were 208,000 persons covered under Medicaid; in 1995 268,000 persons under age 65 were in the program.

Secondly, there has been a substantial increase in the number of persons covered by employer group health insurance between 1994 and 1995. The Current Population Survey conducted in March 1996 by the U.S. Bureau of the Census reports that in 1995, an added 85,000 persons under age 65 were covered by group health insurance in Connecticut. A one-year drop may not indicate a downward trend in the uninsured, and data on 1996 coverage levels will not be available for a few months, but the program review committee believes there may be several reasons to be encouraged by these data.

Group health insurance coverage is closely connected with the job market -- as fewer persons become unemployed, the less likely they are to be uninsured. [1] Thus, as Connecticut has experienced a growth in jobs -- 1,528,800 jobs in March 1994 grew to 1,565,100 jobs in March 1995 -- a growth in health coverage has also occurred. Secondly, the state legislature passed legislation, P.A. 90-134 (and revised in subsequent legislative sessions), that made it easier for smaller employers to obtain group health coverage. By statute, health insurers (including HMOs operating in relevant areas) must now guarantee coverage to employers with three or more persons; insurers are prohibited from terminating an employers coverage because of health claims, and insurance portability was greatly improved.

In addition, associations like the Connecticut Chambers of Commerce and the Connecticut Business and Industry Association (CBIA) have put together purchasing alliances of their members so that more choices of health insurance, including managed care products, are available to small employers at affordable prices.  The chamber alliance also offers coverage to employers with only one member.  CBIA insurance officials indicate that about 10 percent of their insured employers did not have health insurance before.  Employers also state that managed care products have introduced price competition to group health insurance, making it more affordable for employers to purchase health coverage for their employees.

 As a result, Connecticut has achieved the second lowest percentage of uninsured population among the 10 states compared, as shown in Table I-1.  Only Minnesota, with  an average rate of 10.5 over the past four years, was lower.  Expectedly, states with high immigrant populations -- Texas, Florida, and California -- all had more than 20 percent of their state populations without health insurance.  

 Trends in Types of Coverage

 More and more persons nationwide are covered by insurance plans that include some type of  managed care.  Figure I-2 shows the growth of managed care plans nationally. Since 1988, the health care market has shifted from predominately conventional plans to a market where managed care plans now dominate.  In fact the market share of HMOs alone now surpasses conventional plans.    

 Connecticut=s experience with managed care enrollment is similar to the nation=s. In Connecticut, approximately one million people, or one-third of the population, are now enrolled in HMOs.  Figure I-3 plots the phenomenal growth in Connecticut HMO coverage between 1991 and 1995.

          

 Trends in Costs of Health Care

Connecticut=s total health care costs are still increasing.  Table I-2 lists Connecticut=s aggregate health care costs for five-year intervals from 1980 through 1990, and for 1992 and 1993, the two most recent years with available data.  These data include all health care expenses from the provider source (hospitals, labs, pharmacies, doctors), and thus does not provide information on whether the purchaser had insurance or not.  

The table contrasts Connecticut=s data with several other states being used in this study for comparative purposes.  The right column of the table indicates the annual increases averaged over the 13-year period, and, as indicated, Connecticut experienced the fourth-highest growth rate of the states compared. Total health care costs in the state increased by 11 percent a year between 1980 and 1993, and overall almost quadrupled during that 13-year period.     

 When measured on a per-capita basis, as shown Table I-3, health care expenses were similar. As Table I-3 indicates, Connecticut=s annual average per capita growth rate in health care from 1980 to 1993 was similar to aggregate cost increases -- about 11 percent.  

Health insurance premiums.  As discussed, these expenditure figures are measured using the costs of all health care (including nursing home care, prescriptions, dental care, hospitals and doctors) being purchased in the state regardless of who purchases it.  In addition to these expense data, trend information on aggregate health care premiums in Connecticut 1980 through 1995  are graphed in 5-year intervals in Figure I-4.  

As the graph shows, aggregate premiums for both regular health insurers and HMOs continue to rise.  Regular health insurers also capture more of the private insurance premium market than do HMOs in Connecticut -- more than $4 billion to regular health insurers compared to $1.5 billion to HMOs.   However, it is interesting to note that, while HMO enrollment in 1995 covers about one-third of Connecticut=s population, as mentioned above, HMO premiums account for only about 25 percent of all health care insurance payments.

    

It is impossible to obtain an average premium cost per-employee from the total premium dollars spent, basically because no data exist on how many people are actually covered with the premium dollars collected by regular health insurers.  As a substitute for a per-employee cost for health care premiums, program review used data collected by Foster Higgins, a national health care consulting firm that annually surveys more than 2,500 employers on its health care benefits and costs.

The graph in Figure I-5 shows the per-employee costs for those employers surveyed in Connecticut from 1992 through 1995.  As the graph shows, per-employee benefit costs are less with HMO coverage than in traditional indemnity plans.  Also worthy of note is that 1995 per-employee costs in both types of plans are lower than 1994 costs.   

   

 

Because 1993 is the last year with available aggregate  health care costs, it is difficult to show the impact, if any, managed care has had on costs.  This is especially true in Connecticut, where significant expansion of managed care has been recent.  However, one national measure of costs that is slowing considerably is the medical portion of the consumer price index (CPI).  Figure I-6 below shows that while still somewhat higher than the CPI overall, the 1996 percentage (up to October 1996) is the lowest it has been in ten years charted.  While some of this decline in growth rate may be due to general economic conditions, it is safe to assume that managed care has played some role.  

A study conducted by the General Accounting Office (GAO), and released in 1993 stated that savings from managed care were not obvious at that point.   AAlthough many employers believe that they are saving money from network-based managed care, the evidence has been inconclusive about the extent to which such plans hold down employers= costs.@ 2  It further stated that none of the recent surveys [prior to 1993] of employers= premiums adjust for differences in enrollee characteristics or benefits covered in network-based managed care and indemnity plans.

However, more recent surveys appear to show employer-sponsored health care costs increasing at much lower rates than two or three years ago, especially for HMO coverage.  Figure I-7 shows the rates of increases for health plan premiums as cited in the KPMG report mentioned above.  As the figure shows, not only has the trend overall come down dramatically -- from almost 12 percent average increases in 1991 to about 1 percent overall growth in premiums in 1996, but in fact the 1996 rates for HMOs actually dropped slightly.  Of course, as the GAO study points out, these surveys do not measure the impact that differences in coverages, or higher co-pays on the part of employees, might contribute to lower employer premiums.  

Trends in utilization.  The decline in utilization is also obvious. A study conducted by the Congressional Budget Office3 using data from the 1992 National Health Interview Survey, showed that health maintenance organizations reduce use of health care services by an average of about eight percent.  The study found that there was great variation in the reduction in services depending on the HMO model, with group/staff model HMOs reducing services by 21 percent, while other models that contract with groups of physicians reduced use by 3.6 percent.  The study concludes that it would be impossible, due to geographical obstacles among others, to have everyone enroll in group model HMOs, but if all insured persons who were in totally unmanaged care had been enrolled in effective utilization review programs and those in effective HMOs did not change, insured services would have been lower by 1.3 percent in 1990, and total national health expenditures would have been 0.9 percent less.

Trends in utilization in Connecticut.  One of the aspects of managed care is to control the use of medical treatments and substitute expensive and/or invasive procedures with less costly measures and in less expensive settings.  Again, it is not possible to indicate the extent to which managed care alone is responsible, but health care statistics show that there has been some reduction in certain types of health care utilization in Connecticut.  

 

For example, hospital admissions and hospital stays are declining fairly rapidly, as depicted by the figures on the previous page.  Figure I-8 shows that the average length of stay in hospital has gone from 6.34 days in 1993 to 5.5 days in 1995, a decrease of about 15 percent in just two years. Figure I-9 illustrates that the number of hospital discharges is also shrinking, though not as dramatically -- in 1993, there were 389,243 persons discharged from Connecticut hospitals and in 1995 373,416 discharges occurred, a decrease of 4 percent.

The decline in inpatient care is basically the result of controlling utilization, but is also due to HMOs and other insurers negotiating deep discounts with hospitals, creating economic incentives to treat patients in other than in-patient settings, and not to keep them as long when they are admitted.  Of course, technological advances have also helped to reduce the necessity of in-hospital stays, but exploded the number of outpatient procedures performed.  Nationally, only 16 percent of surgeries were performed on an outpatient basis in 1980; by 1993, 55 percent of them were.  In Connecticut, the experience has been similar. In 1985, 71,213 Asame-day@ medical procedures were performed; by 1995 there were 273,771 such procedures, almost 4 times as many in 10 years. 

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