A Plan For Health For 30 Years, The Managed Care Industry Has Emphasized Health Maintenance

If there’s one thing Peter Straley is sure of, it’s that no one wants to be treated with yesterday’s medical technology.

 

And as health care continues to make rapid advances, that poses a financial concern for all parties — including health plans.

“Technology allows us to treat more things, heal more things, than ever before,” said Straley, president of Health New England, the Springfield-based health maintenance organization (HMO). “These are all very good things we want as a society, but we struggle to pay for them. Our ability to invent technology far surpasses our ability to easily pay for it.”

That’s one of the many challenges facing Massachusetts health plans today as they mark the 30-year anniversary of the managed-care model.

When the managed-care industry developed in the early 1970s as an alternative to traditional indemnity health coverage, it was the first time Bay State residents had a product that paid not only for catastrophic care, but routine doctor’s visits, preventative care, and prescriptions.

The key to the industry’s stark growth, which exploded in the 1980s and continues to this day, has always been keeping member costs low.

But the general fiscal strain in health care — combined with such trends as advancing technology, the aging of the Baby Boom generation, and even the explosion of direct-to-consumer pharmaceutical marketing — is making that increasingly difficult for HMOs, members, and their employers alike. And it’s a strain that has seen longtime players leave the market in a rapidly shifting landscape.

HMO administrators say they remain committed to the original mission of keeping people healthier — and saving money in the long run — by emphasizing preventative care, even as industry leaders examine what preventative financial measures must be taken to preserve the via bility of the managed-care system.

Different Model

Before managed care was the norm, most people had an indemnity-based insurance system that focused primarily on treatment of catastrophic illnesses and hospitalization costs, reimbursing patients or providers directly on a fee-for-service basis.

“If you were in an accident or had a severe disease or major surgery, the point of health insurance was to defray the burden of those things,” Straley said. “Things like visits to the doctor’s office for routine care or the purchase of prescription drugs was sort of an afterthought.”

Meanwhile, the insurer was not involved in arranging for health services, monitoring or improving quality of care, or managing the cost of services, said Dr. Marylou Buyse, a primary care physician and president of the Mass. Assoc. of Health Plans. And the lack of preventative care coverage posed a problem, she added.

For example, breast cancer screenings, colorectal cancer screenings, pediatric immunizations, and a host of other proactive procedures proven to save lives — and costs — were not covered under the indemnity system. “Nearly half of all Americans live with some type of chronic illness, accounting for 45{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of all U.S. health care spending,” Buyse said. “But the old form of coverage did nothing to support these patients.”

However, the federal HMO Act of 1973 introduced the managed care model, and by the early 1980s, the concept, with its focus on routine care as well as major conditions, had caught on and become the standard for employer-based health plans.

“By the mid-’80s, it was a given that if you had health insurance through an employer, it should cover routine office visits, child care visits, and most drugs prescribed. Health care was basically free after you paid a modest premium,” Straley explained.

But health care has never been free, and costs have been rising ever since, for a number of reasons. During the 1980s, Buyse said, analysts identified problems with inappropriate care; partly as a result, employers’ health care expenses, as a percentage of corporate, after-tax profits, climbed from 36{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 75{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} between 1980 and 1991. Furthermore, annual premium increases averaged between 15{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} and 20{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} in the early 1990s.

Buyse said the growing dominance of employer-based health plans halted those trends nationwide. In 1993, 54{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of individuals working for a company with 10 or more employees were in some form of managed care; that figure was 93{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} just eight years later.

Premium increases came to a halt between 1992 and 1994, followed by modest increases until 1997. Meanwhile, nationally, between 1990 and 2000, the percent of consumers’ overall personal health spending on prescription drugs fell from 22.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 17.2{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, as did the percent of their personal income spent on medications, from 3.8{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 3.1{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}. During that period, consumers’ out-of-pocket costs dropped from 59{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 32{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, while the total amount private insurers paid rose from 24{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 46{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}.

The payment system has also become easier, Straley said, because instead of patients paying the hospital or doctor’s office and then submitting forms to the HMO, now insurers are billed directly, and patients never see a bill beyond their co-pay or deductible for many services.

Rising Costs

But clearly, not all is ease in the managed care world right now, mainly because of the higher costs of health care.
“Employers and consumers are asking why the cost of coverage keeps rising,” Buyse said. “Premiums are a marker for the cost of care, and increasing insurance rates are the symptom of the real issue — the rising cost of health care.”

Straley offered some specific concerns. “We in the industry are committed to doing whatever we can to keep health care affordable,” he said, “but the two biggest things that make that difficult are advances in medical technology and direct-to-consumer advertising.”

The first factor is easy to grasp — all new technology and products carry a higher cost. The advertising issue, however, impacts the market in ways that are more subtle — but just as serious.

“Twenty years ago, you went to the doctor, he told you what to do, and you did it or didn’t do it. He wasn’t presenting you with options,” Straley said. “Today, people are bombarded with direct-to-consumer advertising, and I think the worst thing that has happened to medicine is treating these extremely expensive drugs as if they’re just consumer goods that everyone should want.”

Consumer knowledge is a good thing, he added, but drugs shouldn’t be sold the way toys are sold to children — the idea that ‘I know someone who took a drug, and it worked, so I should have it too.’ The effectiveness of drugs in individual cases is one reason why this is bad medicine, he said, but so is the cost.
“People are upset that their co-pays went up from $5 to $10, but they don’t understand that these drugs cost hundreds of dollars,” Straley said. “People think of them as free when they’ve always cost, say, $150.”

The HMO field has changed in other ways as well. The challenges of competing in Massachusetts have brought about some major shifts in the marketplace, particularly in Western Mass.
During the 1990s, for instance, Capital Health Plan merged with Kaiser Permanente before both names left the scene. And Harvard Pilgrim, which is still growing strongly in the Boston area, is no longer a player in Western Mass.

That leaves Blue Cross Blue Shield, Health New England, and Tufts as the three major players in the western counties, with national powerhouses such as Aetna and Signa not making major inroads here.

In fact, Straley said, Farmington-based Connecticare is the only Connecticut-headquartered plan to show much interest in breaking into the Pioneer Valley market.
Despite the financial and competitive challenges, however, health plans continue to tout their efforts to improve access to preventative care, developing publications and educational programs to that effect, as well as paying for routine tests.

“Preventative care — doing the things we ought to do to avoid big costs in the future — is what HMOs were created to do,” Straley said. “We take care of people when they’re healthy and help them stay healthy. That has always been the underpinning of managed care, but at first, it was a pretty radical idea.”

In a health care field bursting with radical advances, that’s a concept that has stood the test of time for 30 years.