The rise of High Deductible Health Plans. Goodbye HMO’s?

HMOs Decline, Consumer Plans Rise As Health Insurance Option
9/17/2012 @ 8:59AM | Forbes | Bruce Japsen
More employers are choosing consumer-directed health insurance over HMOs while PPOs remain the most popular choice, a new survey shows.

The health maintenance organization (HMO), once billed as a savior of medical insurance that would reign in medical costs by restricting choices and pushing patients to low-cost primary care, is deteriorating as an option for U.S. consumers.

A new study by Aon Hewitt (AON) is the latest sign that so-called “consumer directed health plans” — high deductible medical insurance usually tied to a health savings account that allows enrollees to set aside money through a tax-deferred arrangement — have overtaken HMOs as an option offered by major employers.

Preferred provider organizations, or PPOs, are still the most popular health plans offered by employers. PPOs allow their enrollees to go outside of the health plan’s network but at a higher cost to the health plan subscriber.

Aon Hewitt’s survey shows 58 percent of nearly 2,000 U.S. employers offered a consumer-directed health plan in 2011, compared to 41 percent in 2010. Meanwhile, 38 percent offered an HMO in 2011 compared to 41 percent in 2010.

The employers represent more than 20 million employees who have their medical care managed by an array of health plans including Aetna (AET), Cigna (CI), Humana (HUM) and UnitedHealth Group (UNH) and Blue Cross and Blue Shield plans across the country.

Though consumer-directed plans are on the rise, PPOs were offered by four in five employers, or 79 percent in 2011, Aon Hewitt said. That compares to 79 percent of employers that offered PPOs in 2010.

PPOs have been popular for years because of choices and flexibility. But the AON Hewitt study shows the rise of the consumer-directed health plan is a sign that employers want to stabilize what they pay for health costs by putting more of the risk and decision making about costs with their workers.

In a consumer-directed-health plan, employees can set aside their own money in an account though often times the employer provides a match or a certain amount for the worker to use toward their deductibles and co-payments. The consumerism comes through the idea that health plan subscribers think twice about using certain services and therefore make better health choices when they know they could exhaust money in their accounts toward potentially unnecessary procedures or costly medicines.

“Employers are beginning to explore innovative solutions that focus on both the short-term need to manage health care costs and the longer-term requirement to change underlying behavior patterns, shifting the focus from ‘caring for the sick’ to ‘actively managing the health of their employees,’” Maureen Fay, senior vice president and head of Aon Hewitt’s Consumer Directed Health Plan (CDHP) working group said in a statement. “Consumer-driven health plan designs are becoming increasingly popular among employers because they provide them with a vehicle for promoting consumerism and a framework for educating and motivating employees to actively engage in understanding and managing their health.”

Even though employers continue to offer HMOs, their workers are moving toward consumer directed health plans, a study earlier this year by benefits consultancy Mercer showed 20 percent of all employers in 2011 in its survey offered consumer-directed health plans and 13 percent of workers enrolled in them. By comparison, 27 percent of all employers last year in the Mercer survey offered HMOs and 20 percent enrolled in them.