What’s the Difference Between HMOs and Non-HMOs?: National Survey of Consumers Finds Limited Disparities with Non-HMO Plans

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

What's the Difference Between HMOs and Non-HMOs? National Survey Finds Limited Disparities

Conference Executive Summary | March 16, 2000

Contrary to prevailing public opinion, health maintenance organizations (HMOs) delivered the same levels of hospital, surgical, and emergency room care as other types of health plans, according to a major nationwide study released by HSC. While the findings eased fears that HMOs skimped on expensive but medically necessary treatment, they simultaneously raised questions about whether HMOs were actually managing care and controlling costs as intended. The study also identified significant trade-offs that consumers navigated when choosing between HMOs and alternative plan types, including preferred provider organizations (PPOs) and traditional indemnity plans.

These findings were presented at a March 9 conference titled "Do HMOs Make a Difference? Comparing Access, Service Use and Satisfaction Between Consumers in HMOs and Non-HMOs." HSC researchers shared results from the 1996-1997 Community Tracking Study Household Survey, which included interviews with nearly 36,000 privately insured individuals across the country. The full study appeared in the Winter 1999/2000 issue of the journal Inquiry.

A panel of health policy experts then discussed what the results meant for pending patient protection proposals, private purchaser decisions, and the future direction of managed care. Discussants included Linda Bilheimer, Ph.D., of The Robert Wood Johnson Foundation; Janet Corrigan, Ph.D., of the Institute of Medicine; Robert Reischauer, Ph.D., of the Urban Institute; and John Rother, director of legislation and public policy for AARP.

Comparisons Along Key Dimensions

The rapid expansion of managed care enrollment throughout the 1990s had fueled a consumer backlash, with widespread complaints that HMOs constrained provider choice and restricted access to services. Yet much of the evidence informing both policymakers and the public came from anecdotes rather than systematic data. HSC senior researcher James Reschovsky noted that this study filled an important gap because it was designed to generate "objective, evidence-based information on how HMOs affect consumers' access to care, use of health care services and satisfaction with care, as compared to other kinds of plans."

On service utilization, the investigators found no meaningful differences between HMOs and non-HMOs in the use of hospitals, emergency rooms, or surgery. HMOs did reduce specialty service use while increasing ambulatory and preventive care visits. Regarding barriers to care, HMO enrollees did not report significantly higher levels of unmet or delayed care than consumers in other plans, but the nature of the barriers differed. Families in HMOs had substantially lower out-of-pocket costs -- just 10 percent of HMO families exceeded $1,000 in annual out-of-pocket spending, compared with 17 percent in other plans. HMO enrollees were therefore less likely to cite financial problems as a barrier but more likely to encounter administrative obstacles. On satisfaction measures, HMO enrollees rated their care lower on eight of nine dimensions, with differences ranging from 3 to 7 percentage points.

Reality versus Perception

HSC vice president Peter Kemper offered two possible explanations for why HMOs and non-HMOs looked so similar on service use and access metrics. First, HMOs may have been influencing how all providers in a local market treated patients, regardless of enrollment type. Second, intense competition had driven health plans of every variety to adopt cost-control techniques originally pioneered under managed care, blurring the practical distinctions between HMO and non-HMO products.

If objective outcomes were similar, why did consumers rate HMO care more negatively? One explanation was that enrollees' assessments were colored more by the generally negative public reputation of HMOs than by their actual personal experiences. Where real differences did exist -- such as HMOs' more assertive care management and tighter controls on specialty access -- those particular features struck an especially negative chord with consumers. Corrigan noted that while consumers could take some comfort in the findings, "there remains a disconnect between people's negative views about HMOs and what the data tell us." She added that a strong external appeals process was needed across all plan types, not just HMOs.

Consumer Trade-Offs and the Future of Managed Care

Taken as a whole, the HSC results laid out a set of trade-offs for consumers rooted in fundamental differences in plan design. HMOs relied on care management techniques to influence provider behavior, which made care less expensive for enrollees but created more administrative hurdles like referral requirements. Non-HMOs leaned on consumer cost-sharing mechanisms such as deductibles and coinsurance to moderate service use, with less oversight of individual treatment decisions. HMOs emphasized primary and preventive services; non-HMOs provided broader access to specialists.

"Consumers, employers and policy makers should be aware that these trade-offs exist," Kemper said. "Different people will value these trade-offs differently. In and of themselves, these trade-offs argue for giving consumers a choice of health plans and allowing them to decide for themselves which trade-offs they prefer to make." Rother agreed that choice alone was insufficient. "It may be that the policy debate, which has been fuelled by a perception that there are huge differences between HMOs and other forms of insurance, has missed the mark," he observed, noting that real opportunities existed to improve health care quality regardless of plan type.

The study also raised fundamental questions about the efficacy of HMO care management. In theory, HMOs were supposed to reduce costs by eliminating inappropriate care or directing patients to less expensive settings. But the data did not show this happening. "Where is the evidence of care management?" Rother asked. Corrigan suggested that existing care management tools were simply "not good enough to do that effectively." At the same time, consumers and providers resisted techniques that limited provider choice and specialty access. As plans loosened restrictions in response, they weakened their own cost-control mechanisms. Ginsburg predicted that future advances in care management would have to be designed in ways that were acceptable to both patients and physicians.

Sources and Further Reading

Kaiser Family Foundation -- Employer Health Benefits Survey -- Annual data on employer-sponsored health insurance.

Health Affairs -- Peer-reviewed health policy research.

Robert Wood Johnson Foundation -- Health policy research and programs.

Commonwealth Fund -- Research on health care coverage.