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HSA 312 – SPRING 2020

MANAGED HEALTH CARE

L.EITEL – ADJUNCT LECTURER

READING 3:

ORIGINS, PHILOSOPHY, AND SPREAD OF MANAGED HEALTH INSURANCE IN THE U.S.

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OVERVIEW: MANAGED HEALTH INSURANCE PLANS – LATE 1960s THROUGH EARLY 1990s

Until the 1960’s, these types of health insurance plans were called Prepaid Health Services Plans (PHSPs) or Direct Service (as opposed to Indemnity or Service) Health Plans.

These plans developed in the 1930’s and in the 1940’s for niche markets on the West Coast (especially California and Washington State), in Washington, D.C., and in New York City (HIP).

Risk was seen in terms of a population’s health status or an individual’s health status, and in terms of the quality and appropriateness of services delivered. Related to this philosophy of health insurance, preventive care and wellness services were also seen as a critical concern.

Management of the financial risk associated with insuring and paying for the delivery of health care goods and services was not the sole emphasis of this kind of insurance, but was seen as important, and as directly linked to the provision of truly appropriate and high-quality health care services.

PHSPs were strongly opposed by the American Medical Association and the State and County medical societies (physician organizations), and both professional peer pressure and state laws inhibited the spread of this form of insurance prior to the development of the formal HMO concept in the 1960’s and the passage of the Federal HMO law in 1973.

From the late 1970’s onward, Indemnity and Service health insurance plans began either to disappear, or to transform themselves into insurance entities with a number of Managed Care add-on features.

Through the 1980’s and 1990’s, HMO products became more familiar to the public, enrolled larger and larger numbers of members, and evolved and diversified into other forms such as Preferred Provider Organizations and Point of Service Health Plans.

To reiterate: This family of health insurance products addressed health risks in a way which was fiscally prudent but which also served the cause of enhanced individual patient health status as well as improved population/community health status.

Managed Care Health Insurance Plans focused less on patient cost sharing than did the traditional Indemnity and Service health insurance plans. The individual consumer’s monthly payment to the HMO was supposed to encompass the full extent of a patient’s liability for health service expenditures.

They tended to be more regulated by the States, and were limited in their ability to use benefit design (including inclusion and exclusion of health benefits) as a way of managing financial risk.

These plans focused on Wellness and Preventive Services, the use of Primary Care Practitioners as coordinators of all of a patient’s health care services (“gatekeeper”), preauthorization and precertification of diagnostic and therapeutic procedures, and other activities which involved the insurance company in decisions about the actual provision of care.

Managed Care Organizations also created and maintained specially contracted and more limited networks of individual and institutional health care providers.

In the 1990s, these plans often offloaded risk onto physicians (both Primary Care and Specialty Care Practitioners) through a variety of capitation arrangements which were intended to serve as further financial incentives for physicians to act as prudent users of and advocates for particular health care services.

Finally, these health plans sometimes shared management responsibilities by subcontracting with specialized “carve-out” Managed Care Organizations to manage financial risk as well as quality and appropriateness for services such as Behavioral Health Services, Pharmaceutical Services, and Dental Services.

MANAGED CARE – THE BEGINNINGS:

The idea of Managed Care was originally born in the activities of the following TYPES OF health insurance plans in the 1930’s, 1940’s, and early 1950’s:

These plans developed in the 1930’s and in the 1940’s for niche markets on the West Coast (especially California and Washington State), in Washington, D.C., and in New York City

Kaiser Permanente (mainly though not exclusively centered in California). Kaiser started as a series of health plans, mainly available to specific groups of workers employed by Kaiser on specific work projects. In the early 1950s Kaiser Permanente became open to the general public;

The Group Health Cooperative of Puget Sound in Seattle;

The Health Insurance Plan of New York (late 1940’s);

Some health insurance plans in Washington, D.C.

These Prepaid Health Services Plans (PHSPs), also known as Direct Service Plans – the term Managed Care was not used until the mid 1960’s – integrated the payment of claims for health care services provided by individual and institutional providers with institutional arrangements and mechanisms for influencing patient and provider decisions about the appropriateness and location (level of care) of health care service delivery.

PHSPs did not focus on patient cost sharing, as did the traditional Indemnity and Service health insurance plans. The individual consumer monthly payment to the PHSP was supposed to encompass the full extent of a patient’s liability for health service expenditures.

These plans focused on Wellness and Preventive Services, the use of Primary Care Practitioners as coordinators of all of a patient’s health care services (what was later, in the 1990s, called the “gatekeeper” function), preauthorization and precertification of diagnostic and therapeutic procedures, and other activities which involved the insurance company in decisions about the actual provision of care. They also tended to limit a member’s provider choice by having limited and integrated networks of providers dedicated to serving just their patients.

PHSPs were strongly opposed by the American Medical Association and the State and County medical societies, as well as state hospital associations, and both professional peer pressure and state laws inhibited the spread of this form of insurance prior to the development of the formal HMO concept in the 1960’s and the passage of the Federal HMO law in 1973.

Thus, the PHSP philosophy and model of health insurance and health care service delivery, in essence Managed Care, was at odds with the form of employer-based private health insurance and the health care services delivery system that predominated in the United States from 1945 through 1975. In fact, for reasons we will discuss below, from the late 1970’s onward Indemnity and Service health insurance plans began either to disappear, or to transform themselves into insurance entities with a number of Managed Care feature add-ons.

The great crisis of health care price and expenditure inflation which started in the late 1960s, and which grew into an unmanageable problem for employers, insurers, and workers by the late 1970s, caused insurers of all kinds to reconsider their opposition to Managed Care.

Through the 1980’s and 1990’s HMO health insurance plans became more familiar to the public, enrolled larger and larger numbers of members, and evolved and Managed Health Insurance diversified into other forms such as Preferred Provider Organizations and Point of Service Health Plans. This family of health insurance products addressed health risks in a way which was fiscally prudent but which also served the cause of enhanced individual patient health status as well as improved population/community health status.

Finally, in the late 1980s, the Blue Cross/Blue Shield plans and the major private commercial health insurance companies, along with a number of medium-sized and rapidly growing Managed Health care insurance companies, with support from a number of large employers, made the decision to move the vast majority of employees with private health insurance from traditional Indemnity and Service plans to the three (3) major forms of Managed Health Insurance plans.

Whereas in 1988 73% of workers with employer-based health insurance were enrolled in Indemnity or Service plans, by 1996 73% of those workers were enrolled in an HMO, a PPO, or a Point of Service plan. The great shift from unmanaged to Managed Care was made.

MANAGED CARE – THE GROWTH OF NATIONAL INTEREST IN A REGIONAL PHENOMENON – THE 1960s AND 1970s:

The experience of the Prepaid Health Service Plans came to the attention of the rest of the United States in the mid 1960s through the early 1970s. PHSPs would soon to be called Health Maintenance Organizations, and their distinctive form of paying for and delivering care would be dubbed Managed Care. This national awareness was sparked by two sets of events:

Advocacy of all or part of the PHSP approach to medical practice by certain health policy experts, medical schools, schools of health administration, and advocates for the urban poor and working poor in certain cities – this advocacy was focused on the Quality of care aspects of PHSP practice; limiting health care expenditures was seen as a secondary concern.

The Federal government, early on recognizing the beginnings of a real crisis in health care expenditures and pricing, embraced the idea of Managed Care in order to encourage the spread of a form of health insurance which could actually control health care expenditures.

The Advocates: In the 1960’s, a variety of advocates in various sections of American society began to make a strong case for changing key aspects of the U.S. Health Care system of insurance and service provision. They admired the emphasis of PHSPs (now renamed Health Maintenance Organizations, or HMOs, or Managed Care Plans) on Continuous, Coordinated, Comprehensive Care, as opposed to fragmented Acute Care. The image of Managed Care Plans started to change.

Paul Ellwood was a Midwestern health care policy expert who coined the term HMO (Health Maintenance Organization). He championed HMOs as vehicles for quality and reasonably priced health care, with an emphasis on the quality aspects of Managed Care.

Academics such as Barbara Starfield, and institutions like the Albert Einstein College of Medicine Social Medicine Program in the Bronx (New York City), researched and advocated for the critical role of Primary Care Physicians, working in teams, as the best guarantors of good quality patient care. They saw such Primary Care Teams as the best organizations for promoting Comprehensive, Continuous, and Coordinated patient care meeting all an individual’s and family’s health care needs throughout the course of their lives.

Political advocacy groups in some cities, such as Health PAC in New York, were concerned that the flight of the middle class, including many physicians, to the suburbs (beginning in the post-war era, and accelerating in the 1960s) was negatively affecting the opportunities for good quality health care for the poor and working poor in urban areas. The poor and working poor increasingly relied for their medical care on fragmented specialty clinics, often associated with research-oriented academic medical centers, and did not receive the kind of Comprehensive, Continuous, and Coordinated patient care that Ellwood and the other academics and researchers believed was critical for good health status.

These different individuals and groups helped to make critical ideas of Managed Care known to the public at large outside of the PHSP strongholds on the West Coast and the East Coast.

Federal Government Support for the Spread of Managed Health Insurance in the Early 1970s: The HMO Act of 1973

The Federal government, early on recognizing the beginnings of a real crisis in health care expenditures and pricing, embraced the idea of Managed Care in order to encourage the spread of a form of health insurance which could actually control health care expenditures.

The Federal government, through the 1973 HMO Act broke down barriers to the spread of Managed Health plans throughout the U.S., laying the groundwork for the slow but steady expansion in Managed Health plan enrollees in the 1980s.

This Act preempted individual State laws which prevented the spread of Managed Health Insurance Plans outside of their strongholds in Washington State, California, New York City, and Washington, D.C.

This Act provided grants and start-up funds to encourage the spread of Managed Health Insurance Plans.

This Act required all Employers who offered health insurance to their Employees, and who employed a certain minimum of Employees, to offer at least one (1) Managed Health Insurance Plan as one of the health insurance options they offered to their Employees.

HEALTH INSURANCE IN THE UNITED STATES: CRISIS AND TRANSITION – LATE 1960s THROUGH EARLY 1990s

CHALLENGES TO THE SUSTAINABILITY OF THE EMPLOYER-BASED GROUP HEALTH INSURANCE MODEL FROM THE 1960’S THROUGH THE EARLY 1970S.

SEE READING 3.: THE CRISIS IN NATIONAL SPENDING ON PERSONAL HEALTH CARE GOODS AND SERVICES.

The influx of Medicare and Medicaid recipients making demands on the U.S. Health Care services system beginning in the late 1960s interacted in a variety of complex ways with other changes going on in that system to produce substantive and unprecedented increases in the portion of Gross Domestic Product allocated to health care services, and in sustained year-to-year increases in National Health Expenditures. These substantive increases in price and expenditure started to threaten the stability of the prevailing system of Indemnity and Service health insurance plans – would premiums become unaffordable for workers and their employers?

Managed Care and HMOs began to be seen by some politicians, policy makers, academicians, and advocates of the primacy of Primary Care as a quality-oriented answer to the prevailing health insurance system’s inability to address massive, sustained price and expenditure increases. President Nixon and Congress in 1973 approved the HMO Act of 1973, which played a major role in the 1970s and 1980s in starting the spread of Managed Care Health plans beyond their East and West Coast strongholds and breaking down local resistance to the previously marginalized Managed Care health insurance plans.

Indemnity and Service Plans, in part inspired by Federal government experiments in Utilization Review and Management, started to adopt some aspects of Managed Health Plan/HMO practice in order to constrain annual expenditure increases for Personal Health Care Services. They adopted Large Case Management programs, and Utilization Review programs, and thus started to do just what physicians and hospitals had feared prior to 1930 – they started to involve themselves in decisions of length of treatment, type of treatment, appropriateness of treatment, and place of treatment for some health insurance plan members.

THE MASS MOVEMENT OF AMERICANS WITH EMPLOYER-BASED GROUP HEALTH INSURANCE FROM INDEMNITY AND SERVICE PLANS TO MANAGED CARE HEALTH PLANS 1988 - 1996.

As indicated in IV. above, throughout the late 1970s through the 1980s Blue Cross and Blue Shield organizations, and large commercial insurers, tried to maintain and save the Indemnity and Service plans in which the vast majority of Americans with employer-based insurance were enrolled.

As late as 1988 77% of those American workers and their families were enrolled in those health insurance plans. Utilization Management, big case management, and other medical management tools used and inspired by Managed Health Insurance Plans (and in some cases by Medicare) had been adopted by those organizations for their Indemnity and Service Plans, but were not having a significant impact on health expenditures, and were not likely to keep premiums and out-of-pocket expenditures from increasing substantially. Those organizations faced the likelihood of severely disappointing employers and employees by substantially increasing premiums and out-of-pocket expenditures and reducing benefits covered by the Indemnity and Service Plans. The welfare of employees and the viability of the private group health insurance industry were literally at stake.

Blue Cross and Blue Shield health insurance plans, all the plans managed by commercial insurers, and the newer insurance companies which focused more heavily on providing Managed Health Insurance Plans, worked with employers to transition most Americans with employer-based health insurance to Managed Health Insurance Plans between 1988 and 1996. It was believed that only Managed Care would allow those companies to continue offering generous packages of health insurance benefits, and would enable them to control the growth in personal health care expenditures, prices, and volumes of services produced. The price of maintaining the private group health insurance industry’s viability would be the wholesale movement of employer-based group health insurance enrollees to Managed Health Insurance Plans.

Between 1988 and 1996 the relative significance of Indemnity/Service Plans and Managed Care Plans in the lives of American employees and their families was reversed. By 1996 77% of American workers with employer-based group health insurance were enrolled in those Managed Health Insurance Plans. By 2000 almost 100% of those workers and their families were in Managed Health Insurance Plans – HMOs, Point of Service Plans, and Preferred Provider Organizations.

This massive change in the type of health insurance most Americans relied upon to ensure their access to affordable health care services was dramatic and for many Americans a shock. Previously, access to acute care services, diagnostic services, specialty services including consultations, and the full array of personal health care services involved minimal interference from the health insurance plans. Now most Americans would face limits on that access, especially in the form of having to access most services with approval either from an assigned Primary Care Practitioner, or from medical management personnel associated with the respective insurance plans.

THE PHILOSOPHY OF MANAGED CARE – A FOCUS ON CONTINUOUS, COMPREHENSIVE, COORDINATED HEALTH CARE FOR INSURANCE PLAN ENROLLEES:

READINGS 4.A., 4.B., 4.C.

Kaiser Permanente’s philosophy of Managed Care, which focuses on the primacy of Primary Care and the necessity for highly coordinated efforts by insurers and providers, was a major inspiration for the types of Managed Health Insurance Plans implemented throughout the 1990s.

Essential to the Kaiser Permanente philosophy was the belief in the primacy of Primary Care within the system by which personal health care services were delivered in the United states. This belief, championed from the 1960’s and thereafter by policy makers such as Barbara Starfield, asserted that reasonably priced quality health care could only be delivered on a routine basis if patients worked closely and routinely with assigned Primary Care Physicians (individuals and/or teams).

At the heart of this belief in the centrality and primacy of Primary Care was a belief that Primary Care Practitioners were best equipped to ensure that patients and their families received Continuous, Comprehensive, and Coordinated patient care.

THE PRINCIPAL TYPES OF MANAGED CARE PLANS IMPLEMENTED IN THE 1990s – HEALTH MAINTENANCE ORGANIZATIONS (HMOs), POINT OF SERVICE PLANS (POS), AND PREFERRED PROVIDER ORGANIZATIONS (PPO).

By the late 1980s the primary kinds of Managed Care Health Plans had been developed, and were offered to employers and employees throughout the period of the great health insurance plan transitions between 1988 and 1996.

HMOs, Point of Service Plans, and PPOs varied in the extent to which the particular type of insurance plan regulated key aspects of the process by which enrollees, advised by doctors, accessed personal health care services covered by those plans. HMOs and POS plans were most regulated, and PPOs were much less so. In the 1990s HMOs and POS plans had the highest levels of enrollment, unlike the post Managed Care Backlash experience in the post- 2000 era when PPOs predominated (and continue to do so).

Key areas in which Managed Care Plans differed in the intensity and extent of their control of medical management, and physician and plan enrollee choice, included:

Managing limited networks of individual and institutional providers, and requiring that plan enrollees only used those provider networks to access care.
Requiring plan enrollees and their families to access most personal health care services with the approval of a “gatekeeper” or Primary Care Practitioner (individual or team.)
Aggressively negotiating payment rates for provider services, often using capitation for Primary Care Practitioners, and negotiating lower payment rates for Specialty Care Practitioners.
Requiring PCPs to take on extensive risk.
Implementing extensive Utilization Management, Case Management, and Disease Management programs.
Subjecting critical decisions on selected hospital admissions, access to diagnostic imaging, and access to specialty physician consultations to approval not only from PCPs, but from medical management staff within the plan.

Understanding the various types of Managed Care Health Insurance Plans, their relative levels of enrollment, and the different ways they impacted on providers, employers, and plan enrollees in the 1990s is key to understanding the successes and failures of these plans in the 1990s, and understanding the Managed Care Backlash.