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Who belongs to HMOs: a comparison of fee-for-service versus HMO enrollees
A K Taylor1, K M Beauregard, J P Vistnes
1Agency for Health Care Policy and Research, Rockville, MD 20852, USA.
Insights
Health maintenance organizations (HMOs) have grown significantly, but they do not appear to save costs by enrolling healthier individuals. Self-selection is not a major driver of HMO cost savings, as populations are similar in health status.
Area of Science:
- Health Services Research
- Healthcare Management
- Health Economics
Background:
- Managed care, particularly Health Maintenance Organizations (HMOs), has become a dominant model for employer-sponsored health benefits.
- HMO enrollment surged from 15 million to over 49 million between 1984 and 1994, driven by efforts to control rising healthcare costs.
- Evidence on how HMOs achieve cost savings remains mixed, prompting investigation into enrollment patterns.
Purpose of the Study:
- To test the hypothesis that Health Maintenance Organizations (HMOs) enroll healthier individuals compared to traditional fee-for-service (FFS) plans.
- To examine the role of self-selection in contributing to potential cost savings achieved by HMOs.
- To analyze socioeconomic and demographic differences between HMO and FFS enrollees.
Main Methods:
- Utilized data from the 1987 National Medical Expenditure Survey (NMES).
- Compared Health Maintenance Organization (HMO) enrollees with fee-for-service (FFS) enrollees.
- Analyzed variables including age, race, sex, income, education, health status, and geographic location.
Main Results:
- Health Maintenance Organization (HMO) enrollees were found to be younger on average than fee-for-service (FFS) enrollees.
- No significant difference in overall health status was observed between HMO and FFS populations.
- The findings suggest that HMOs do not primarily enroll a healthier population.
Conclusions:
- Self-selection based on health status does not appear to be a major factor contributing to the cost savings observed in Health Maintenance Organizations (HMOs).
- The study indicates that other mechanisms, beyond enrolling healthier individuals, are likely responsible for HMOs' cost containment effectiveness.
- Further research is needed to fully understand the drivers of cost savings within managed care models like HMOs.
Abstract:
As employers have turned to managed care to curtail the rising cost of health care benefits, the number of HMO enrollees has proliferated. Between 1984 and 1994, HMO enrollment increased from approximately 15 million to over 49 million individuals. Although research has indicated that HMOs have been effective in limiting medical costs, there is mixed evidence in the literature on how they achieve these savings. This article uses data from the 1987 National Medical Expenditure Survey to examine one hypothesis for these patterns: that HMOs enroll a healthier population than fee-for-service plans. To test this hypothesis we examine HMO and fee-for-service enrollees with respect to socioeconomic variables such as age, race, sex, income, education, health status, and location. Our results indicate that HMOs tend to enroll a younger but not much healthier population than traditional fee-for-service plans, suggesting that self-selection is not a major contributor to HMO cost savings.