Health Care and Insurance

Consumers drive away from HMOs: Despite declines, most plans in Indiana still have healthy reserves and profits

March 26, 2007

Most central Indiana HMOs lost customers again in 2006, with consumerdriven health care plans inflicting the latest cut.

Eight out of 10 major health maintenance organizations lost members, some for a third straight year. The declines ranged from 4 percent to 48 percent, according to their annual reports filed with the Indiana Department of Insurance.

Most HMOs are in no danger of going out of business. Many posted increased profit in 2006, and most have healthy cash reserves.

But HMOs have lost steam all over the country as customers opt for plans that allow them to choose from a larger pool of doctors and hospitals.

"Overall, they will continue to decline, the traditional HMO," said Ed Abel, director of health care services at Blue & Co., an Indianapolis accounting firm. But, he added, "HMOs will continue to have a presence in Indiana."

An HMO typically pays all or nearly all the cost of care given by doctors and hospitals in its predetermined network, but pays nothing for non-emergency care from doctors outside that network. The restrictions are intended to help control health care costs.

According to the Kaiser Family Foundation, HMOs covered nearly one-third of all employees with health insurance in the mid-1990s, but by 2005 covered just one-fifth of employees. During the same time, the percentage of employees using PPOs more than doubled, to 61 percent.

By contrast, a preferred-provider organization might pay 80 percent of the cost of care provided by its network of doctors and hospitals, and pay a lesser percentage for care provided by out-ofnetwork doctors. And while HMOs require customers to consult their family doctor before seeing specialists, PPOs usually don't.

In Indiana, HMOs never were as popular as in other parts of the country, and they've recently lost market share as auto manufacturers slashed jobs and more national employers, in an effort to simplify benefits administration, have shunned their bevy of local HMOs in favor of one or two national insurers.

The surge of employers embracing consumer-driven plans is just the latest threat to HMOs' business. Consumerdriven plans typically combine highdeductible insurance with a tax-favored health savings account or health reimbursement account. Advocates of such plans say that by giving employees more control over their health care spending, they'll become more cost-conscious.

The share of Americans in such plans is still only about 3 percent, but it's growing fast. From September 2004 to January 2006, the number of Americans in health savings accounts leapt sevenfold, from 438,000 to 3.2 million.

Employers offering consumer-driven plans jumped from 2 percent to 6 percent last year, according to a survey by consulting firm Mercer Health & Benefits. As many as 14 percent of employers said they were likely to offer a consumer-driven plan this year.

Some HMOs, such as M-Plan Inc., say they're not convinced that consumer-driven health plans ultimately will capture the market.

"We looked at that market. We did not see that we should be in that market right now," said Connie Brown, chief financial officer at the Indianapolis-based HMO, which is owned by Clarian Health Partners and Community Health Network. However, Brown said, consumer-driven plans are "having an impact on us, certainly with Lilly."

Last year, M-Plan lost one of its biggest customers, Eli Lilly and Co., which instead offered a consumer-driven health savings account for the first time to its 13,000 local employees. M-Plan is hoping its two-year effort to court small and midsize employers will offset its losses from Lilly in 2007. Its membership fell 5.6 percent last year.

Other HMOs have embraced the consumer-driven trend. Indianapolis-based Advantage Health Solutions Inc. now offers a health savings account to its members, which was one factor that helped Advantage increase enrollment of employees at its existing clients.

In all, Advantage's customer base grew a healthy 3.9 percent last year, reversing a loss in 2005 triggered by the defection of St. Vincent Health, a part-owner of Advantage, which cost the plan 13,000 customers.

"We see consumer health care as something that is very positive to the market," said Advantage CEO Vicki Perry, "which hopefully will result in much-improved health outcomes."

Other insurers, for which HMOs are a minority of their business, are more than making up their HMO losses in consumer-driven plans.

Minnesota-based UnitedHealthcare lost more than 8,000 Indiana HMO customers last year, or 14 percent, but gained nearly 20,000 customers in consumerdriven plans. UnitedHealthcare owns Golden Rule Insurance in Indianapolis and Arnett HMO in Lafayette.

Dan Krajnovich, the insurer's Indiana CEO, said HMOs are still "viable" and aren't going away.

"But our focus is really on our consumer-driven plans," he said, adding that he sees customers "pursuing plans that support long-term affordability for them."

Indianapolis-based Anthem Blue Cross and Blue Shield saw its HMO membership tumble by nearly half, to 12,300, according to its filing with the Insurance Department. However, its consumer-driven plans have seen huge jumps in enrollment. In Indiana, Kentucky and Ohio, Anthem's customers in such plans doubled to 48,500 last year.

Declines in membership did not necessarily sap profits, however. For example, M-Plan's profit edged up 5.6 percent, to $8 million. The HMO's financial strength has surged in the last five years, leaving it with $47.5 million on hand.

The HMO with the best growth in 2006 was IU Health Plan Inc., which serves Medicaid customers. It swelled its customer rolls 13 percent and its revenue shot up 9 percent.

But the Medicaid market was not as kind to other HMOs. The Coordinated Care Corporation of Indiana lost members and tripled its red ink to $3.3 million. Harmony Health Plan of Illinois lost 22 percent of its customers in Indiana. Revenue slumped 13 percent.

In addition, the number of CareSource Indiana's customers plunged after it lost its Medicaid contract with the state of Indiana in December.
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