Rapid change to HMO systems: profile of the Dane County, Wisconsin, experience

Dane County (Madison), Wisconsin, has experienced a dramatic transformation of its health services into competing closed-panel health maintenance organizations (HMOs). The change occurred literally overnight after the state, as the dominant employer, implemented price competition. In 1983, 22 percent of the 24,000 state employees in Dane County were enrolled in closed-panel HMOs; in 1984 about 85 percent enrolled in one of seven major competing physician HMO plans. In 1985 state employees basically stayed with the HMO they had chosen in 1984, and the only major shift was continued movement away from the standard fee-for-service plan. The Dane County HMO plans were less costly than fee-for-service plans to the state and to the state employee. Fee-for-service state enrollees self-reported greater use of inpatient hospital services and self-reported poorer health than employees selecting HMOs when controlling for age between the two groups. This article describes these changes, why they occurred, and the initial impact on employees as an example relevant to HMO development that may occur elsewhere.