What a difference a decade can make.  We remember getting the phone calls and going through various California health plans with people.  We would eventually get to the question of HMO or PPO.  We might be discussing a PPO plan when the person on the phone would ask, "But aren't PPO plans more expensive?".  They use to be but not anymore.  Let's go into the slow but steady disappearance of HMO plan on the California individual health insurance market.

So what happen?  Where did all the HMO plan go?  The short answer is that they went real expensive and any plan that goes real expensive in today's California health market quickly fades into oblivion.  Let's take a quick look at the history of HMO's, their progression, and most importantly...how they stack up today as an option for health coverage on the individual market.  Keep in mind that group health insurance in California is quite different which we'll get into later.  First, how did the HMO's come about.

We've had a series of inflation periods in California health coverage.  HMO's and PPO's were developed to try and counter one of these spells of inflation and they worked...for a while any way.  This was the era of "managed care" which although the source of some derision, did what it was supposed to do and curtailed the onslaught of rapidly increasing health insurance rates.  This period occurred from 80's on and kept rates down until around the early 2000's.  HMO's were a key part of this managed care initiative which flipped the responsibility of health care cost management on it's head so that doctors were now given a capitated amount per person per month to treat patients.  This was quite different from the indemnity style plans which basically payed as you used the coverage regardless with very little management from the California health insurance carrier.  As a result of this management (through financial incentive to the doctor), HMO's became attractive cost options especially to the group health market.  Like we said, what a difference a decade makes.

Various changes occurred that impacted HMO's ability to keep cost down.  By definition, HMO's are more managed in terms of the care.   This is great for keeping costs down but doesn't generate great PR and there was push back from the insured and eventually, the State government.  Restrictions increased and HMO's became more flexible as a result.  Unfortunately, more flexible in a manage care means higher costs.  The other issue is that HMO's generally had richer benefits and in a world of ever increasing health care cost, absorbing more cost even under greater management doesn't bode well.  You can manage medication costs (say mandate a generic over a brand) but you can't really manage an open heart bypass.  With obesity skyrocketing, there are going to some real-world health care costs that can't really be "managed" away.  So where are we now?

For every 100 policies we issue, maybe...MAYBE 1 is an HMO and that's probably an outlier.  This is the individual market.  The reason is simple.  First, many of the HMO's have deductibles built in now (not as rich) and they can be double to triple what PPO plans are.  When you look at the annual premium difference, it's hard to justify getting an HMO plan.  It's almost impossible.  Okay, it's impossible.  We can't think of a situation where a California individual HMO plan makes sense.  Group insurance is difference where the cost comparison is still more favorable towards HMO's but with the underlying trends in the market, it's probably only a matter of time before they follow suit.  Unfortunately, there are two ways to reduce health care cost.  One is to restrict benefits or manage care the way HMO's attempted or the other is to offer incentives (financial) for people to take better care of themselves.  Eventually, we'll get to the latter once we realize that we have no stomach for the former.  You can quote PPO and HMO health plans side by side at our site www.calhealth.net

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