HMOs in Unstable Condition: Members Bolt to Other Plans
Preferred provider organizations offer greater choice, and employers like them because they can shift rising costs to workers.
By Lisa Girion
Times Staff Writer
April 9, 2005
HMOs, once the top choice for Americans who get healthcare as a job perk, are so last century.
Tightly controlled health maintenance organizations have steadily lost ground over the last decade to preferred provider organizations, which offer greater choice of physicians and hospitals and direct access to specialists — though at a higher price.
HMOs garnered only 25% of the employer-based health benefits market last year, down from a high of 31% in 1996, according to a recent survey by the Kaiser Family Foundation, a Menlo Park, Calif.-based think tank. During the same period, PPOs nearly doubled their market share to 55%.
One of the most talked-about new plans is Tonik, launched a few months ago by the California Blue Cross subsidiary of
WellPoint Inc., the nation's largest health insurer. Directed toward people in their 20s, Tonik seeks a coveted group insurers call the "young invincibles" because they are rarely sick.
The company's marketing campaign looks nothing like the button-down image the Blues have long presented. Silhouetted snowboarders careen across Tonik's website, on which medical plans have hipster names such as the "calculated risk-taker" and the "part-time daredevil." Its monthly premiums are as low as $64, with out-of-pocket deductibles as high as $5,000 (the "thrill-seeker").
The most controversial feature of Tonik is its exclusion of any maternity coverage.
Blue Cross says Tonik serves a niche of the uninsured market people who are put off by high premiums because they rarely see a doctor. "Because of their age, attitude and culture, this group wasn't interested in paying for maternity coverage," said Michael Chee, a Blue Cross spokesman. "Maternity is one of the higher-cost items to price a policy for, so taking it out allowed us to price it lower."
Critics say such plans allow insurers to cherry-pick the healthiest consumers but offer skimpy benefits. "The market is likely to turn PPOs from the Cadillac of plans into Pintos that might cost less but have much less protection," said Jerry Flanagan, a spokesman for the Santa Monica-based Foundation for Consumer & Taxpayer Rights.
"The problem when you exclude benefits like maternity coverage is you don't have fair risk pools in the marketplace anymore," said Astrid Meghrigian, a lawyer for the California Medical Assn. "People have babies on [an HMO plan] and then go back into a cheaper PPO."
This plan-hopping has pushed a rising tide of people with costly health problems such as diabetes, morbid obesity and heart failure onto HMOs, whose costs are capped.
"What's strained the HMOs in terms of economics," PacifiCare Chief Executive Howie Phanstiel said, "is the young, healthy people going into PPOs."
