Managed Care is Dead…. Long Live Managed Care

A quick history and overview of America’s private health

insurance plans

Jonathan P. Weiner, Dr. P.H.Professor or Health Policy & Management

Johns Hopkins Bloomberg School of Public Health(jweiner@jhsph.edu)

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At lightning speed, this primer session will:

• Provide a brief history and nuts-and-bolts overview of health insurance and managed care in the US.

• Highlight some reasons for and effects of the recent “Managed Care Backlash.”

• Help provide a context for understanding health care reform proposals presented at this conference.

All slides copyright the Johns Hopkins University - 2008

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0

500

1000

1500

2000

2500

1962 1966 1970 1974 1978 1982 1986 1990 1995 1998 2000 2008

Year

Dol

lars

(bill

ions

)

Source: HCFA, CMS

Of course its all about the money -- US health care spending: 1962-2008

4

0500

100015002000250030003500400045005000550060006500

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70

Per capita GDP (thousands $PPP)*

Per

cap

ita h

ealth

Spe

ndin

g ($

PP

P)*

Luxembourg

NorwaySwitzerland

Ireland

Iceland

Turkey MexicoPoland

Slovak Republic

HungaryKorea

Czech Republic

Portugal

United States

Greece

New Zealand

SpainJapan

Finland

Italy

Germany

France

United Kingdom

Sweden

Netherlands Denmark

Canada

Austria

Australia

Belgium

Source: OECD in Figures, 2006, 2007

*Purchasing power parity

Health spending vs GDP in OECD nations:The US is the outlier

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Alternative approaches for financing / organizing health care

• Government employed providers• Government “social insurance”

– Mandatory buy-in

– Entitlement for special populations

• As “benefit” of employment

– Insurance

– Direct care or access to contract providers

• Union/worker collectives• Privately purchased health insurance • Out of pocket / private pay• Charity care

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Proportion of Americans with health insurance: 1940-2008

0

10

20

30

40

50

60

70

80

90

100

Year

% I

nsur

ed

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US Health Insurance: Some Historical Highlights

• 1930’s -- Blue-Cross/ Blue Shield and Hospital Association.

• 1930’s – Prepaid-Group Practices (PGPs) and Union/Employers

• 1950’s – Commercial insurers get into the act

• 1960’s -- Federal “great society” – Medicare and Medicaid

• 1970’s - The “Health Maintenance Organization” (HMO) Act (the unholy alliance of AMA sponsored IPAs and union friendly PGPs)

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Why Employers Got Involved In Health Care in the US

• Healthy employees are productive employees

• European immigrant / union expectations

• Tax advantage

• Attracts good employees

• Employers filled the vacuum in the 1930-50’s, (now “stuck” in this role).

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Health Insurance Coverage in the U.S., 2006

Medicaid/ Other Public

12%

Medicare14%

Private Non-Group5%

Uninsured16%

Employer-Sponsored Insurance

54%

SOURCE: Kaiser Commission on Medicaid and the Uninsured/Urban Institute analysis of March 2007 CPS.

Total = 296.1 million

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55.655.155.255.657.058.259.561.160.859.957.0 57.357.4 56.3 56.1 56.0 55.355.6 54.7

45.344.744.444.043.943.742.740.1 39.2 38.9 40.5 41.8 43.0 44.4 44.8 44.9 44.4 43.0 42.6

0%

10%

20%

30%

40%

50%

60%

70%

Most Americans get health insurance “privately,” but the public sector bankrolls almost half of all care

.

Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group,

Private Funds

Public Funds

(% Distribution of Personal Health Expenditures by Payer, 1980-2006)

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The Most Important Chart in this Presentation: (Private Health Insurance Premiums, Worker’s Earnings and General Inflation, 1988-2007)

.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2007;

18.0%

14.0%

8.5%

0.8%

11.2% *

12.9% *13.9%

10.9% *

8.2% *

5.3% *

9.2% *

12.0%

7.7% *

6.1% *

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20% Health Insurance Premiums

Workers' Earnings

Overall Inflation

3.7%

2.6%

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The “Rise and Fall” of Managed Care is Embodied in this Trend Line

In the late 1980’s the bankrollers of the system said enough was enough, and the era of “managed care” was born. HMOs and their techniques served as the model.

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Managed Care Organization's Approximate Share of the Health Insurance Market in 1988 & 2008

1988

FFS 75%

MCO 25%

FFS 75% MCO 25%

2008

FFS 15%

MCO 85%

FFS 15% MCO 85%

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The US Health Insurance / “Managed Care” Models (and approx market share in 2008)

• Traditional Fee-for Service (Unmanaged)

– 15% (Mainly Medicare)

• Preferred Provider Organization (PPO) and other “loose” managed care plans

– 47% (includes “consumer defined health plans” / “high deductible health plans”)

• Health Maintenance Organization (HMO)

– 38% (includes “point of service” “open-HMO”)

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The Key “Ingredients” of Managed Care

• Care “management”

– aka, utilization/disease management

• Vertical integration / coordination of independent providers

• Financial risk sharing with providers and consumers

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Types of health plans have shifted over the years (employer based plans)

* Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2007; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.

73%

46%

27%

10%

8%

7%

4%

5%

5%

3%

25%

21%

20%

21%

11%

26%

28%

39%

42%

46%

52%

54%

55%

61%

60%

57%

7%

14%

24%

21%

23%

18%

17%

15%

15%

13%

13%

4%

5%

3%

3%

16%

21%

31%

28%

29%

24%

27%

24%

0% 20% 40% 60% 80% 100%

1988

1993

1996

1999

2000

2001

2002

2003

2004

2005

2006

2007

ConventionalHMOPPOPOS-HMOCDHP/HDHP

*

*

*

*

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Private managed care plans care for the majority of Medicaid / S-CHIP enrollees (Trends ‘90-’04)

2.3 2.7 3.6 4.8 7.8 9.813.3 15.3 16.6 17.8 18.8 20.8 23.1 25.3 26.923.0

25.627.3

28.6 25.8 23.619.9 16.7 14.3 14.2 14.9

15.817.0

17.5 17.4

0

5

10

15

20

25

30

35

40

45

50

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Number Enrolled in Traditional Medicaid Programs

Number Enrolled in Medicaid Managed Care

Enrollment (in millions)

25.3

28.3

30.9

33.4

33.6

33.4

33.2

32.1

30.9

31.9

33.7

36.6

40.1

42.7

44.4

Source: KFF

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0%

5%

10%

15%

20%

25%

30%

35%

1992 1994 1996 1998 2000 2002 2004 2006 2008

% of Beneficiaries in MCOs

Medicare’s Private MCO (“Medicare Advantage”) Enrollment has Waxed and Waned

Source: CMS

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The managed care backlash and public perceptions

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US Consumer Perceptions

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US Public’s Perception on Regulation and Managed Care

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Consumers Don’t Really Understand Why Health Care Costs are Rising

Percent who say each is a “one of the single biggest factors in rising health care costs”:

Drug/insurance companies making too much money

Fraud and waste in the health care system

People getting treatments they don’t really need

Administrative costs in handling insurance claims

Too many medical malpractice suits

Doctors/hospitals making too much money

People needing more care due to unhealthy lifestyles

37%

50%

37%

36%

30%

30%

29%

28%

23%

12%

SOURCE: ABC News/KFF/USA Today Health Care in America Survey (conducted September 7-12, 2006)

Use of expensive new drugs/treatments/technology

The aging population

More people are getting better medical care

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The “backlash” has not had much impact on MD / MCO financial relations (Trends in Physician Contracting and Managed Care Revenue, 1996-2005)

1996-97 1998-99 2000-01 2004-05

Physicians with No Managed Care Contracts

9.4% 8.6% 9.2% 11.5%*

Average Number of Managed Care Contracts Among Physicians with ≥1 Managed Care Contract

12 13 13 13

Physicians with No Managed Care Revenue

5.7% 5.2% 5.8% 8.6%*

Revenue from Managed Care Among Physicians with ≥1% Managed Care Revenue (Mean)

42% 45% 45% 44%

*Change from 2000-2001 is statistically significant at p<.001.

Source: Center for Studying Health System Change, Community Tracking Study

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The three decades of private health insurance: The solutions must be here somewhere??

FFS HMO MCOOpen

AccessConsumer Driven HC

Provider Dominance

Costs out of

Control

MCO Product Expansion

MC Backlash

We gotta try

Something new