Market Instability Puts Future of HMOs in Question

Originally published as Community Report No. 3 by the Center for Studying Health System Change (HSC), Fall 2000. Authors: Glen P. Mays, Sally Trude, Lawrence P. Casalino, Patricia Lichiello, Leslie A. Jackson, Ashley C. Short. HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Community Report: Seattle, Washington -- Health System Changes in the Third Round

In September 2000, HSC researchers visited Seattle, Washington, for the third round of the Community Tracking Study, interviewing health care market leaders across the Puget Sound region. Seattle was one of 12 communities tracked by HSC every two years. The first two visits in 1996 and 1998 provided the baseline for measuring change in a market that had long been considered a bellwether for national health care trends.

Market Restructuring and Plan Competition

Seattle's health care market underwent significant restructuring during this period. The Puget Sound region had long been one of the most heavily managed care-penetrated markets in the country, with Group Health Cooperative and Premera Blue Cross among the dominant plans. But the managed care landscape was shifting as several provider-sponsored health plans exited the market, reducing plan options for employers and consumers. Group Health Cooperative, which had operated as a staff-model HMO for decades, was transitioning toward a mixed-model approach, reflecting the national pattern of consumer demand for broader provider choice. The market saw growing competition between the remaining health plans, with Premera and Regence Blue Shield consolidating their positions while national plans like Aetna and Cigna had reduced their local presence.

Hospital Market and Provider Consolidation

The hospital market in Seattle was evolving rapidly. Providence Health System and the University of Washington Medical Center were the largest hospital systems, and both were expanding through acquisitions of community hospitals and development of outpatient facilities. Swedish Medical Center had also grown into a major presence. Hospital consolidation was creating larger systems with greater negotiating leverage against health plans, contributing to price increases that were beginning to affect employer premiums. The region's strong economy, driven by technology companies like Microsoft and Boeing, had kept employer demand for health benefits strong, but rising costs were starting to prompt more aggressive cost-management strategies.

Access, Quality, and the Safety Net

Seattle maintained a relatively robust safety net for low-income and uninsured populations, supported by Harborview Medical Center (the county's public hospital), a network of community health centers, and Washington state's relatively generous public coverage programs. However, the number of uninsured residents was growing as employers shifted costs to workers and as some smaller firms dropped coverage. The community showed strength in quality improvement and health information technology, with early efforts at electronic health records and clinical decision support that positioned Seattle among the more advanced HSC-tracked communities in these areas.

Sources and Further Reading

This Community Report was based on site visits to Seattle conducted in September 2000 as part of HSC's Community Tracking Study. The research team included Glen P. Mays, Sally Trude, Lawrence P. Casalino, Patricia Lichiello, Leslie A. Jackson, and Ashley C. Short. The Community Tracking Study was funded by the Robert Wood Johnson Foundation.