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University's open season shows embrace of preferred provider organizations but no backlash against HMOs

Since the late 1990s, nationwide studies indicate a consumer trend of selecting preferred provider organizations (PPOs) over fee-for-service (FFS) plans, point-of-service (POS) plans, and health maintenance organizations (HMOs). A new study of the University of Michigan employees' health insurance program shows this trend continues, however, without the purported backlash against HMOs. Kyle L. Grazier, Ph.D., and colleagues at the University of Michigan studied 32,183 employees' health insurance selections in 2005, the first year 2 existing insurers offered PPOs.

These plans give their members financial incentives, such as low co-payments, to use the plan's clinicians. Before 2005, the university offered employees six health plans. Three plans were HMOs, which offer employees low costs but limit their access to care by having their primary care physician serve as a gatekeeper for services. Two were FFS plans, which give employees flexibility in choosing their providers and services in exchange for high out-of-pocket expenses, paperwork, and high premiums. One was a POS plan, offering similar services to an HMO but allowing employees to seek care outside of the network.

When given the opportunity, 10 percent of the employees switched to the two PPOs, ranking them fourth and fifth among the eight plans offered. Those who chose PPOs typically were previously enrolled in FFS and POS plans, which were more expensive than the other plans offered in 2004 and 2005.

The researchers suggest that employees were lured to the PPOs not solely by the plans' prices, but because of their desire for larger provider networks and comprehensive but relatively unmanaged coverage. The availability of the two PPOs did not cause an exodus in enrollment from the three HMOs. Employees who had not previously enrolled in an HMO found the new PPOs attractive; however, those already enrolled in an HMO did not.

The researchers suggest that the national trend against strong forms of managed care could be a regional phenomenon or may be contextual, occurring when an employer offers only few plans or when an HMO is very restrictive. This study was funded in part by the Agency for Healthcare Research and Quality (HS15591).

See "Insurers' competitive strategy and enrollment in newly offered preferred provider organizations," by Richard A. Hirth, Ph.D., Dr. Grazier, Michael E. Chernew, Ph.D., and Edward N. Okeke, M.B.B.S., M.P.H., in the Winter 2007 Inquiry 44, pp. 400-411.

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