PPOs Are Becoming More Popular

January 3, 2005
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LANSING — Employers in the region searching for alternatives in their employee health coverage have new PPO (preferred-provider organization) options to consider.

Blue Cross Blue Shield of Michigan recently began offering several new PPO health plans, and Grand Rapids-based Priority Health recently announced it will introduce a fully-funded PPO in March to complement its self-funded PPO option.

Priority Health's sales manager, Dave Quinn, reported that the firm will begin quoting the fully-funded PPO plan at the end of January.

Quinn said the new product should appeal to employers who:

  • Have multiple locations in this state and want to maintain continuity of benefits across those locations.
  • Want the greater flexibility in designing benefits that the PPO model offers.
  • Don't at this point want to fully assume the risk that comes with a self-funded health plan.

"If they don't have the size for self-funding, this is another route to go," he said.

National data show PPO models have been steadily gaining enrollment in recent years.

According to Joe Ekstrom, senior vice president and employee benefits practice leader for Marsh USA's Grand Rapids office, employers who've been coping with double-digit premium increases see some advantages in PPOs.

Ekstrom said PPOs have many of the same components as an HMO and typically share the same care network. This, he said, can give employers a better option for customizing plans and altering benefit packages.

Unlike HMOs, however, he noted that PPOs allow subscribers to self-refer themselves to medical specialists, rather than requiring them to get a referral from a primary care physician.

He said PPOs also provide some coverage for out-of-network care.

Because of their flexibility, Ekstrom added, PPOs match up well with the emergence of new consumer-driven health plans and health savings accounts that are catching on with employers.

"We're starting to see a lot of employers who have reached a point where they've modified their plans as much as possible," Ekstrom said.

"They're looking for a different way of doing things," he added. "They're tired of tinkering with co-pays, deductibles and contributions and they want to move to the next generation of health care."

Nationally, the annual 2004 survey of employer-sponsored health plans by Mercer Human Resource Consulting — a division of Marsh USA — showed enrollment in PPOs grew to 58 percent of all covered employees, up from 54 percent in 2003.

The survey also indicated that HMO enrollment was flat last year, after a drop of two percentage points the previous year.

In West Michigan, the annual 2004 cost survey by The Employer Association and the Alliance for Health showed continued movement toward PPOs last year.

"It really is the product of choice," said Paula Brawdy, director of sales in the West Michigan region for Blue Cross Blue Shield of Michigan.

About 90 percent of Blue Cross Blue Shield's 1.2 million subscribers in the western half of the Lower Peninsula are enrolled in a PPO product — a "huge shift," Brawdy said, from the 30 percent of just five years ago, as employers moved away from the insurer's HMO and  POS (point-of-service) plans.

To meet group customers' increasing demands for more health plan options, Blue Cross Blue Shield of Michigan in October introduced several new PPO products for 2005 enrollment.

The Healthy Blue PPOs offer what's described as a simpler benefit design that includes a wellness component and they provide the same percentage of co-payment for in-network and out-of-network care. They also eliminate deductibles.

"We're really trying to meet that demand for simplicity," Brawdy said.

The new PPO product provides the base for Blue Cross Blue Shield of Michigan's new HSA product, Brawdy said.

Priority Health developed the new fully funded PPO in response to client demand, Quinn said.

The product, he said, represents an "evolutionary step" for Priority Health's product lineup that includes HMO, POS and self-funded PPO plans.

The step comes because competition for PPOs is on the rise, particularly with Humana Inc. making a major push in the Michigan market during 2004.

"It's just giving another option out there that gives us a place to go where the client wants us to go," Quinn said.

PPOs do tend to cost a little more than HMOs, although the cost trend is less — 6 percent last year vs. 11.8 percent for an HMO — according to the Mercer Human Resource Consulting survey.

PPOs have less restrictive care networks, and the ability to shift costs through co-pays and benefit designs make them appealing to employers, Ekstrom said.    

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