Chapter 1: A History of Managed Health Care and Health Insurance in the United States

1. Discuss why HMOs were formed in the first place.

Ans: They were established in response to a variety of forces. For example:

 Group Health Cooperative of Puget Sound, legally structured to this day as a consumer
cooperative, was organized by consumers. However, it is an exception as the origins of
individual HMOs are highly varied.
 The Kaiser Foundation Health Plans and the Health Insurance Plan of Greater New
York were formed at the behest of employers. In the case of Kaiser, the motivation was
to provide medical care in an otherwise underserved area where the Kaiser construction
company was building the Grand Cooley Dam.
 The Group Health Association in Washington, D.C. was formed at the behest of the
Home Owners Loan Cooperative, which sought to reduce the number of mortgage
defaults.
 Many of the early independent practice association type of plans were formed by
community physicians seeking to protect revenue sources in the face of competition
from Kaiser and other staff or group model HMOs.

More recently, both insurers and entrepreneurial companies have implemented different
types of plans and freestanding managed care companies such as consumer directed / high
deductible health plans to respond to the market—particularly employers seeking to constrain
rising health care costs.

2. Discuss how employers can constrain health care costs and promote wellness besides
contracting with HMOs.

Ans: Employers can take a variety of measures including utilization management; for example,
prior authorization of inpatient stays and expensive outpatient procedures, as well as encouraging
obtaining second opinions for selected elective surgery procedures. Employers also use large
case management and disease management for patients with complex and expensive conditions
such as accident victims and premature infants. Employers may also institute various wellness
programs (see text for examples). Employers can also create or contract with preferred provider
organizations or tiered networks, entailing identifying providers who are willing to offer
discounts and, hopefully, demonstrate efficient practice patterns. This is combined with
incorporating into the benefit plans incentives for employees and their families to use these
providers.

3. Discuss how important it is to employers that managed care plans demonstrate that they offer
quality care.

Ans: Employers differ in their attitudes. Many employers want the health plans with which they
contract to be accredited by the National Committee on Quality Assurance, the leading HMO
accrediting body. Plans are also concerned with their performance on HEDIS and other report
card measures, and they take comparative measures of member satisfaction seriously. However,
the measurement tools are all imperfect. (For more detail, see subsections on (1) “Maturation” in
“Managed Care Comes of Age and the chapter on “Accreditation of Managed Care
Organizations.”)

4. Discuss the salient forces leading to the rise and fall of various types of managed care plans.
Speculate on how current and future forces might lead to further changes.

Ans: A combination of legal, regulatory, and market forces have always driven change in
managed health care. In response to access issues and providers seeking secure sources of
income, the forerunners of Blue Cross and Blue Shield came into existence in the 1930s. Wage
and price controls during World War II resulted in an increase in pre-tax employee benefits,
including health insurance. The advent of Medicare and Medicaid in the 1960s, along with
growing private coverage, fueled further expansion in the provider system. Subsequent rapid cost
increases in the 1970s and 1980s led to the expansion of stronger forms of managed health care
such as HMOs, enabled by federal legislation that were favorable to the formation and operation
of HMOs that met certain criteria. A public backlash, caused by a variety of forces, led to a
decrease in popularity of HMOs and greater use of somewhat less managed types of plans such
as PPO and POS plans. A resumption of cost increases in turn led to the introduction of
“consumer directed health plans” (CDHPs) and the adoption of greater consumer cost sharing.
Federal legislation then led to a rapid expansion of Medicare enrollment in capitated managed
care plans. As for the future—well, that's an awfully good question, isn't it?

5. Discuss how the relationship between the government and the managed care industry changed
over the years.
Ans: Although less true in recent years, a generally positive interplay between the public and
private sectors has existed. All levels of government have contributed much to managed care
growth, and Medicare and Medicaid HMOs have come to cover millions of enrollees. For many
plans, employees of state and local government, including public schools, represent a significant
share of enrollment, and many plans have adopted the RBRVS and DRG reimbursement
methodologies, both developed by Medicare for its FFS programs.
As managed care became successful in the 1990s, the stress between the public and the
private sector heightened. The stress may be attributed to several managed care practices, real or
perceived, such as overzealous claim denials, restrictive formularies, and the restrictive
interpretation of the medical necessity guidelines. A more extensive discussion is found in the
text.