Health Maintenance Organization

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The ins and outs of HMOs

By BuyerZone.com Editorial Staff

One of the two most popular forms of managed care networks is the health maintenance organization (HMO). At last count, there were 89 million Americans enrolled in an HMO in July 1999, according to American Association of Health Plans. So if you're planning on offering health insurance to your employees, you'll certainly want to understand this widespread form or healthcare.

An HMO is an organization that signs up doctors and hospitals into a network. Members pay a set per-person fee, giving them access to the HMO's services. Unlike traditional health insurance or PPOs (the second most popular managed care system), HMOs require plan members to choose a primary care physician (PCP) who performs basic health checkups and approves all visits to medical specialists.

While this structure helps minimize general costs, it can be unpopular with some patients. For example, if your employee's current family physician were not part of the network of the HMO you offer, he or she would have to switch to a network doctor to enjoy the full cost-saving benefits of the plan.

On the other hand, most HMOs have an enormous network of doctors. There's a very good chance that your employees' current physicians are part of the network. Also, physicians often join more than one popular health care network in their geographic region.

The "referral" part of the business can get a bit sticky though. As already stated, HMOs generally cover only the expense of member visits to doctors and hospitals that are part of the network. It doesn't matter if your PCP refers you to a physician outside the network (though that is unlikely anyway) - you will still have to cover the cost yourself for any visits outside the network.

Some plan members find this practice distasteful. In theory, it doesn't sound too bad. And in most cases, it works out very well.

But, for example, say a plan member was just diagnosed with a very rare and serious heart condition. Naturally, he would want to see the specialist with the most expertise regarding his particular heart condition. Unfortunately, if the best doctor for the job is not part of the plan network (maybe he or she lives in Rome or Tokyo), then that plan member must either settle for a doctor within the network, or shell out the medical fees of preferred specialist himself.

Choosing an HMO

Virtually all HMOs cover hospital care and emergency care. Most also cover outpatient care, which includes routine exams, lab work, and office visits.

But HMOs can vary significantly in other areas from plan to plan. You may find that some HMOs might not include treatments such as prenatal and postpartum maternity care, prescription drugs, and ambulance service. It's also important to pay particular attention to the provisions of long-term treatments such as mental health or substance abuse; some HMOs offer insufficient coverage in these areas.

Programs also vary widely in defining what constitutes an emergency, from strictly life threatening conditions to any sort of health concern. HMOs are often reluctant to cite specific guidelines in this area, but you may want to ask about specific examples. Would a child's high fever qualify? A perceived heart attack? An allergic reaction?

Another way to save your employees a lot of potential problems is to do some research on how the HMO you're considering resolves grievances from plan members. Quality HMOs should have a set procedure in place for airing disagreements before a grievance board. If you find there are a lot of outstanding grievances from current plan members, a warning flag should go up.

What about physician availability? Though it's not unusual for HMO networks to be enormous, some plans sign up doctors simply to boost their numbers. To get a better sense of the actual availability of doctors in the network, ask what percentage of its doctors are actually accepting new patients.

Want to get an idea if the HMO you sign on to today will be around tomorrow? Check the stability of the parent company. If a commercial insurance firm owns the HMO, you can examine the fiscal ratings of the company through reporting agencies such as A.M. Best or Standard & Poor's.

Evaluating physicians

The quality of physicians participating in the network can be the most difficult area to assess, although it is arguably the most important.

First, inquire about the screening process that is used to sign up physicians. A screening process should ideally include checks of the doctor's background, including analysis of any previous malpractice issues.

Also, ask how many physicians in the network the American Board of Medical Specialties has certified. To be certified, a physician must demonstrate competency in a specialty by passing tests or meeting training requirements. Ideally, 85 percent or more of the physicians should be board-certified.

A final statistic to evaluate is the physician turnover rate. This can give you a good indication of the likelihood that you will be forced to switch doctors. The turnover rate can also indicate how satisfied physicians are with the rules for treatment and reimbursement within the network. Better programs usually have a turnover rate of less than 3 percent to 5 percent.

Price

HMOs cost an average of $3,165 per employee per year, according to the 1997 National Survey of Employee-Sponsored Health Plans by Mercer/Foster Higgins. HMO costs have been dropping steadily in the past few years and are now less expensive, on average, than traditional fee-for-service health insurance plans and preferred provider organizations (PPOs).

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