Managed Health Care: A Primer

Publication Date: September 1997

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

Since the early 1970s, market forces have driven profound changes in the financing and organization of health care delivery. Whereas the functions of paying and providing for medical care were once separate, now they are joined together in an increasing number of managed care organizations.

Between 60 to 70 million persons (approximately 20% of the U.S. population) were enrolled in over 600 health maintenance organizations (HMOs) in 1996. In addition, between 80 to 90 million persons were enrolled in more than 1,000 preferred provider organizations (PPOs), which is another type of managed care organization. Altogether, over one-half of the U.S. population and almost three-quarters of insured employees were covered by some form of managed care in 1996.

Individual practice associations (IPAs) are the most common and fastest growing type of HMO; they account for 60% of all HMOs and 44% of HMO enrollment. Together, staff and group model HMOs account for less than 20% of total HMO enrollment. About three-quarters of HMOs now offer a point-of-service (POS) option, which allows enrollees to see out-of-network providers for a higher premium and/or coinsurance payment. The data are mixed on whether medical expenses are higher for POS members than for traditional HMO members.

National managed care firms, also called corporate HMO chains, accounted for 88% of total HMO enrollment and 70% of all HMOs in 1995. By January 1996, almost half of total HMO enrollment was in the seven largest national firms, up from 34% only 6 months earlier. This concentration of membership reflects mergers and acquisitions that have been occurring at a rapid pace in the managed care industry.

For-profit HMOs enroll about 60% of all HMO members and constitute about 70% of all HMOs. Recent analyses indicate that in market areas where there are more for-profit HMOs, net operating margins tend to be lower and annual enrollment growth tends to be higher. However, net operating margins are increasing faster for for-profit HMOs than for non-profit HMOs.

In 1997, the average base salary of HMO chief executive officers (CEO) was $227,133 (the median was $195,787). This is an increase of 56% since 1991. With bonuses and incentives added in, the mean HMO CEO salary was $310,241 (median, $227,500). Ten percent of HMO executives make well over half a million dollars a year.

Almost two-thirds of persons under the age of 65 are covered by employer-sponsored insurance. Of these, in 1996, 73% received health care from a managed care organization. Since 1993, insured workers’ enrollment in traditional indemnity plans has dropped from about one half to under a quarter. Managed care enrollment has been particularly rapid in HMOs with a POS option. Cost considerations are closely associated with this change. In 1995, employers paid an average of 15% less for HMO coverage than for traditional indemnity coverage.