Healthcare Trends 2006: The Migration to Self-Insurance

'Tis the season for retrospectives, and I am not immune from the temptation to muse about recent developments in healthcare. So, this is the first in an irregular series that will appear here for the next month in which I look at what seem like important developments, as opposed to fads, in healthcare. I'll focus on finance, delivery, and management issues, and leave clinical developments to other sites.

Not as flashy as electronic health records (EHRs), the trend away from HMOs and insured PPOs toward self-insurance combined with non-risk-bearing PPOs seemed to accelerate in 2005 and 2006:

• After reaching a peak of 1.640 million enrollees in 2001, most HMOs have seen their enrollment decline. As of June 2006, there were 1.293 million HMO members in the state. National companies like Compcare, Humana and UnitedHealthcare (once the largest HMO in the state) have encouraged employers to move into PPOs and to self-insure their benefits.

“Wisconsin HMOs at a Glance”, by Allen Baumgarten
http://www.AllanBaumgarten.com

Allen Baumgarten has nearly identical language in his reports of the health industries in every one of his state surveys:

• Minnesota (“Commercial HMO enrollment has declined from more than 1 million in 1996 to 510,000 in 2005”)
• Colorado (“Enrollment in Colorado HMOs reached a peak of 1.637 million enrollees in 2000, but has dropped every year since then”)
• Michigan (“health plans and employers alike are moving away from the HMO model to benefit plans that allow more consumer cost-sharing”)
• Ohio (“there are 225,000 fewer Ohioans in HMOs now than at the end of 2003”)
• Illinois (“Since [2000, HMO] enrollment has decreased steadily and in all three lines of business - commercial, Medicare and Medicaid”)
• Florida (“Enrollment in Florida HMOs dropped by 431,000 members or 15.8% in the 18 months from January 2004 to June 2005. That was the fifth straight year of declining enrollment.”)
• Texas (“As of June 2005, HMO enrollment in Texas has fallen to 2.337 million, down from a peak of nearly 4 million members in 2000.”)
• California (“Medical groups, which built their systems around receiving monthly capitated payments, face a continued decline in HMO enrollment”)

The HMO industry’s loss of market share to PPOs is not news – indeed, reports of the decline of HMO enrollment can be found well back into the 1990s. Yet, much of that migration from HMO to PPO in the late 1990s and the early part of this decade was from HMOs to insured PPOs, often in the same Blue Cross Blue Shield plans that offered the HMOs. What seems to this observer to be the story is not the shift to PPOs, then, but the shift to self-insurance.

Self-insurance was very popular in the late 1980s and, in some parts of the country, early 1990s until insured HMOs offered better cost-control options to employers. So, we saw a rapid migration from self-insured plans (usually not involving managed care principles other than utilization management) to HMOs. The reign of the HMOs, however, was relatively brief and not all that geographically widespread. By the turn of the century, as we've seen, the benefit flexibility that self-insurance offers started to lure employers back to their comfort zone of self-insurance.

That this migration has picked up steam over the last two years is, in my view, among the little-understood but most important developments in healthcare finance and delivery. As we'll see in succeeding essays, trend is serving as a platform for many other developments that are receiving much more ink in the "end of the year" articles about healthcare, such as EHR and consumer-directed healthcare.

The reader is well-advised to remember this platform as you think about the policy and management implications of these higher-profile developments.