Simplification vs. Choice

Kyle Grazier and Edward Okeke of University of Michigan's School of Public Health, released results and discussed their study of recent addition of PPOs alongside HMOs and FFS plans in the University of Michigan health plan open enrollment selection process, which appears in the article "Insurer Competitive Strategy and Enrollment in Newly Offered Preferred Provider Organizations (PPOs)" in the March 2008 journal "Inquiry."

Their School of Public Health states that "people are happy in an HMO as long as participation is voluntary —that is, as long as they aren't forced to participate in an HMO instead of a less managed care plan like a PPO." Richard Hirth, professor of health management and policy, tells us "the results suggest that the perceived dislike for HMOs could stem from the context in which they are offered, rather than from actual or perceived deficiencies in the HMO system." 

Such conclusions, that choice of plans = satisfaction, are hardly new. In a 1997 Health Affairs article by by Ralph Ullman, Jerrold W. Hill, Eileen C. Scheye, and Randall K. Spoeri, the authors conclude "Communitywide surveys have demonstrated that managed care enrollees tend to express higher satisfaction with their health plan if they have been given the opportunity to make a choice between managed care and fee-for-service plans. This DataWatch shows similar results with plan-specific data, even for enrollees whose plan benefits include coverage for out-of-network services. That is, what matters seems to be choice at the time of enrollment, not at the point of service. Further, in the practical application of ranking plans on overall enrollee satisfaction, choice appears to be a more important influence than other factors that may receive attention, including enrollees’ health status."

The managed care backlash of the late 1990's was fueled in part by "total replacement" HMO offerings - that is, employer environments in which only one plan was available. Many benefit consultants advocated this approach in order to maximize negotiating clout and simplification and standardization of benefits.

Paul Ginsberg of the Center for Studying Health System Change, in a 1999 article on this subject wrote "While these forces have helped backlash to spread, its roots may lie in another national trend: the rapidity of employers' shift to managed care. The proportion of employees enrolled in managed care plans increased from 29 percent in 1988 to 86 percent in 1998 (KPMG Peat Marwick 1998). Although some of this shift reflects choices by employees, some reflects the termination of conventional plan offerings. In 1998, only 38 percent of employees could choose a traditional plan, compared to 63 percent in 1995. Moreover, in that year 21 percent were offered only a point of service or HMO plan (Gabel 1999). Those enrolled in managed care as the only option are likely to feel differently about it than those who chose it over a conventional plan. At the same time, many employees with managed care coverage found that they had fewer plans to choose among. In 1998, almost half (49 percent) of employers offering an HMO offered only one plan (KPMG Peat Marwick 1998). Among employers POS plans, 73 percent offer only one POS option. Particularly problematic has been the "total replacement" strategy pursued by some employers, where there is a choice among products but all of the options are provided by the same insurer."

It is instructive to keep the managed care backlash experience in mind as we consider health plan choice environments today. While health plan choice has increased somewhat in the small employer environment, the exact opposite has occurred with larger employers since 1999. Consider this data from the Kaiser Family Foundation Employer Health Benefits Annual Surveys for 2007 and 2009:

Thus health plan choices have diminished, not increased, in this supposed era of consumer choice in health care this decade. 

There is currently a backlash brewing against consumer driven health plans, driven by various political, policy, and organized labor groups. Consumer driven plans don't even have the benefit of having achieved dominant market share that HMOs had at the time HMO backlash peaked in 1999-2000. But, like the HMO total replacement strategies in the 1990s, a number of employers are offering CDH plans as the sole option this decade, as advocated by many benefit consultants.

Consider this excerpt from an August 2007 Business Insurance Article entitled More employers offering only consumer-driven health plans:"Overall, though, the number of companies taking the plunge remains small; about 10% of companies now offer CDHPs as the sole coverage option, said Helen Darling, president of the Washington-based National Business Group on Health. 'Relatively few employers are offering consumer-directed health plans only,' Ms. Darling said. 'But the ones who do full replacement are the ones who get significant savings.' Total replacement programs also tend to prevent adverse selection, which can occur when only the healthiest employees enroll in a CDHP while high-dollar claimants remain in traditional plan options, experts note. 'You don't have to worry about the person who does five triathlons a year and are generally healthy electing a CDH plan while your smokers and cardiac patients are selecting traditional plans,' said Mike Sturm, principal and consulting actuary at Milliman Inc. in Brookfield, Wis. 'When you switch everyone over, you eliminate that selection bias.' "

An Aon Consulting/ISCEBS June 2007 survey on this topic pegged the number a little higher - with 17% of employers offering CDH in a total replacement environment.

It would seem choice can occur at various key points along the consumer health plan experience spectrum: health plan selection, provider selection, and specific treatment/service option selection. A consumer driven plan can offer choices and empower consumers in selection of providers and treatment options, but multiple plans are required to provide a choice in plans. As discussed, studies continue to show that plan choice may be the most crucial point in the spectrum in regard to satisfaction, and consumers need choice to "buy-in" to feeling empowered.

At the start of this decade, the health care consumerism movement focused on defined contribution health plans, where employers provided a fixed contribution to fund health plan choices. The focus quickly shifted to account based consumer driven health plans. Perhaps the "defined contribution" aspect, which was a part of the University of Michigan open enrollment offerings, should be given greater attention as a part of the consumerism equation.

So- how does one balance the equation between simplification and choice? Simplification can reduce complexities and adverse selection, while choices increase them. Empowered health care consumers need choices in order to take responsibility for decisions. Simplification is desired in order to make those decisions manageable, but at some point there may be no choices left to make.