Deductibles On The Way From HMOs

May 31, 2002
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Health-maintenance organizations may once again offer clients health plans that use deductibles, a variation that will result in employees picking up more of the cost for their health benefits but may help employers begin to get a handle on escalating premiums.

Recently enacted legislation— which assesses HMOs and nursing homes to leverage federal Medicaid funding — included a provision that restores the ability of managed-care companies to fashion health plans with deductibles. The move is one way to try and stem the double-digit premium increase employers have faced in recent years.

“We have a little broader tool we can work with and we’ll see if we can provide something that is workable,” said Eugene Farnum, executive director of the Michigan Association of Health Plans, which represents HMOs in Michigan.

The association pushed for a legislative amendment that was a last-minute addition to the Medicaid Quality Assurance Assessment, which Gov. John Engler signed into law May 10 following its passage in the Legislature.

HMOs previously could only write health plans that use co-pays. The change in the law will enable them to formulate plans that use either co-pays or deductibles, or a combination of both, with the goal of bringing a lower-cost HMO product to the market.

“We’re trying to figure out how we can produce a better product for the market,” Farnum said. “We’re hoping it will be something worthwhile.”

HMOs lost the ability to build deductibles into their products two years ago under legislation that transferred regulatory authority over the industry from the Department of Community Health to the Office of Financial and Insurance Services. At the time, combining deductibles with co-pays was a little-used practice.

The lack of use, combined with ambiguities in the language of the law, led regulators and lawmakers to strike it from the bill. Double-digit increases in health premiums in recent years that show no sign of easing in the near future prompted HMOs to seek to have the language restored in response to customers’ demands for options that can help ease the burden of rising health-care costs and shift a greater portion of the cost to employees.

“There is increased market demand,” said Joan Moiles, deputy director of the Health Plan Division of the state Office of Financial and Insurance Services.

“The time had come,” Moiles said. “Premium increases have gone up so much there is a demand to do anything you can to reduce the cost of HMOs to employers.”

More than 2.7 million people in Michigan receive health benefits through HMOs.

Premiums for all HMO plans covering one person increased an average of 12.4 percent locally in 2001, according to the annual survey of employer health plan costs conducted by The Employers’ Association and the Alliance for Health. Premiums for two-person plans rose 13.8 percent and family plans increased 14.7 percent.

Grand Rapids-based Priority Health, which has more than 273,000 HMO subscribers, hopes to introduce a deductible-based product “in the very near future,” said Rob Pocock, associate vice president of marketing and corporate communications.

The change in the law also will enable managed-care companies to better compete with other forms of health coverage, Pocock said.

“This will allow us to meet very specific customer demands,” he said. “We’ll introduce it just as soon as we can get a product that’s well-designed and at a fair priced.”

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