Why is HMO cheaper than PPO insurance

Managed Care in the USA: Insurance overwhelming power

THEMES OF THE TIME

If the rights of insurance companies are unilaterally strengthened,
supply problems and financial hardship can result.


Managed Care is a form of health care in the USA in which the insurance carriers provide their services under predominantly economic aspects. The cost units, known as Health Maintenance Organizations (HMO) or Managed Care Organizations (MCO), pursue the goal of limiting costs by directly influencing the behavior of doctors and patients. Typically, HMOs are private insurance companies that operate on the principles of free enterprise economics. In terms of economic management, they are comparable to private German health insurance companies.
As part of nationwide campaigns, doctors, nurses and patients protested against HMO arbitrariness in Los Angeles last year.
The concept of an HMO is not new in the US. Since the mid-1960s, US health care costs have grown rapidly, up to three times the annual rate of inflation. Without shared financial responsibility, the patients, also known as consumers in the USA, were of the opinion that more care was synonymous with better medical care. The doctors shared this view, because more performance in the era of performance-related remuneration also meant a higher income, especially for residents. In order to counteract this cost explosion, the HMOs have developed their own concept to limit costs.
In the USA there is no solidarity-based health insurance or mandatory health insurance for employees. It is up to the individual employee or self-employed person to purchase insurance cover for himself and his family at a reasonable price. The insurance market is highly competitive. There is no employer subsidy for self-purchase. However, some employers, especially universities, schools and the public service, offer their employees basic health insurance up to 100 percent paid for by the employer as part of the benefit package. Many of these insurance carriers are large HMOs or MCOs. Special services can also be secured in the modular system. Dental services are usually separate from other medical services and must be insured in addition. When you consider that in 1998 the US Census Bureau estimated the number of uninsured US citizens at 44.3 million, or 16.3 percent, affordable or free health care is a real privilege for many Americans (2). The call for comprehensive health insurance for all citizens is getting louder (3).
Due to the large number of their employees, many employers have concluded group contracts with health insurance companies at significantly reduced prices. Large employers with a large number of employees therefore have leverage over insurance companies when renegotiating premiums and contracts. In order to keep insurance premiums low and remain competitive, the HMOs broke new ground in the 1990s. They identified two main points of efficient resource management: quality and cost (1).
In emergencies, the clinic obtains a payment guarantee from HMO outside the network. Photos: ap
Insurance companies tried to define and measure the quality of medical care. At the same time, costs should be limited through patient co-payment and access restrictions to medical services (gate keeper function). Access restrictions to specialists and to the emergency room are important instruments of cost control for HMOs.
Large employers and insurance companies have worked together to develop a monumental system of uniform quality control, which also serves to inform patients and employees and to make it easier for them to choose their insurance (1). The insurance companies assess medical services on the basis of data surveys. Among other things, the quality of care, economic efficiency, access to care and patient satisfaction are measured. Assessments of medical records and patient surveys are common means of quality control by HMOs. Quality characteristics play a significant role in renegotiating contracts.
The HMOs enter into group contracts with doctors and hospitals of their choice. Patients only enjoy full insurance cover if they seek treatment in their health insurance network. The insurance carrier only partially pays for elective services outside the network, or not at all. However, doctors and clinics can reject or terminate offers and contracts. This also applies to the HMOs. By changing contract partners or terminating an insurance contract, a patient can lose his trusted doctor or his HMO contract hospital. The consequences for the elderly and chronically ill are dire because long-term doctor-patient relationships are broken. The HMO must approve major elective interventions or diagnostic measures in advance. The free choice of doctor is usually only possible within the network. Visits to the primary care physician have an additional fee of ten dollars. An additional fee is also charged for patient transport and hospital admissions.
In emergencies, the clinic or emergency room outside the network will obtain a payment guarantee via a 24-hour hotline. Especially in emergencies, the HMOs require patients themselves to call the hotline or their personal network doctor in order to obtain approval for the treatment. This practice has led to major problems because some treatments have not been carried out. The MCOs often keep the caller waiting in endless loops, and timely contact is often not possible. If the patient is still treated in the emergency department, the reimbursement of costs can even be retrospectively rejected, even though an emergency was present. The patient receives a hospital bill and no reimbursement from the health insurance company.
Another problem is that the MCOs also employ non-doctors for authorization over the phone. In the case of an eight-year-old girl who was hospitalized in New York in 1995 with a fever and headache (4), the HMO initially failed to cover the costs for the "emergency treatment". The doctors examined and treated the child anyway. Diagnosis: meningococcal meningitis. These and other MCO grievances are a constant topic in the medical press and public discussion (6, 7).
Strengthen patient rights
A major problem in the American HMO system is shared responsibility. The system, devised by the insurance companies with the good intent of controlling costs, currently seems to be only functioning on one side. If treatment errors or omissions occur because costs are refused, the HMOs usually refuse to accept liability for damage. The consumer has to go to court. Reason: The assumption of costs is not a medical act and therefore cannot be measured against medical law. Doctors and patients are free to decide in favor of treatment despite a refusal to assume the costs. Only a change in insurance law can put an end to this HMO nuisance. In the USA there is no institution that mediates between doctors and insurance companies like the German statutory health insurance associations. Only in California has an HMO regulatory authority been established.
After years of arguments between doctors and patients and insurance companies, the issue has reached Washington. A bill, which is largely supported by the Democrats, provides for the co-responsibility of insurance companies to be defined and the rights of patients to be strengthened vis-à-vis the HMOs (7). Patients should have more opportunities to sue HMOs for delays or refusal of medical treatment. President George W. Bush criticizes the proposed law because he fears that insurers could face a wave of lawsuits and drive insurance premiums up. Non-wage labor costs are also a sensitive issue in the USA. It remains to be seen how the House, Senate and President will decide.
In the context of the discussion about the future of the German health care system, it is interesting to consider the American experience from the 1990s. In the United States, it has been shown that rationing in health care creates significant problems when the rights of insurance companies towards patients and doctors are unilaterally strengthened. The HMO model shows that uncontrolled power shifts in favor of insurance companies can lead to supply problems and financial hardship, which then have to be resolved retrospectively through political means.

The numbers in brackets refer to the bibliography on the Internet (www.aerzteblatt.de).

Tareg Bey, MD, FACEP, ABMT
Associate Clinical Professor
Department of Emergency Medicine
University of California, Irvine (UCI)
101 The City Drive South
Orange, CA 92686, USA
Hanchak NA: Managed Care and Office Practice. Med Clin North Amer 1996; 80: 245-261.
Collins MC: Health care trends. Fam Pract Manag 2000; 7: 33-38.
Pope JE, Carolyn A: Doctors converge on Sacramento to lobby for universal health coverage. American College of Physicians / American Society of Internal Medicine website. www.acponline.org/uninsured/calif.htm (selected July 17, 2001).
Osborn HH: Health maintenance organizations: Managed care or mismanaged care? Ann Emerg Med 1996; 27: 225-228.
Derlet RW, Young GP: Managed care and emergency medicine: conflicts, federal law and California legislation. 1997; 30: 292-300.
Miller G: House turns from campaign reform battle to patients ’rights. Los Angeles Times, July 15, 2001.
1. Hanchak NA: Managed Care and Office Practice. Med Clin North Amer 1996; 80: 245-261.
2. Collins MC: Health care trends. Fam Pract Manag 2000; 7: 33-38.
3. Pope JE, Carolyn A: Doctors converge on Sacramento to lobby for universal health coverage. American College of Physicians / American Society of Internal Medicine website. www.acponline.org/uninsured/calif.htm (selected July 17, 2001).
4. Osborn HH: Health maintenance organizations: Managed care or mismanaged care? Ann Emerg Med 1996; 27: 225-228.
5. Derlet RW, Young GP: Managed care and emergency medicine: conflicts, federal law and California legislation. 1997; 30: 292-300.
6. Miller G: House turns from campaign reform battle to patients ’rights. Los Angeles Times, July 15, 2001.
Managed Care in the USA: Insurance overwhelming power

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