As Maryland companies try to control rising health-care costs, the state's health maintenance organizations are going through a shakeout.
In Maryland, where 1.9 million residents belong to HMOs, some businesses are demanding lower insurance premiums if the previous year's claims warrant it. Others are granting employees limited coverage outside HMO plans. Still others are experimenting with self-insurance plans, which cut into HMO profits.
Meanwhile, HMOs are being buffeted by the widespread perception that the health-care delivery system has written a nationwide prescription for economic ruin.
"HMOs are all things to all people," said Dr. Jonathan P. Weiner, who teaches health policy and management at the Johns Hopkins School of Public Health. "To private-practice doctors, they're considered socialized medicine. To consumer activists, they're considered big business.
"The truth is actually somewhere in between. HMOs are really very complicated -- they are really a microcosm of what's happening in health care today, and as such have become everybody's lightning rod."
Avoiding that lightning will call for a higher degree of flexibility and nimbleness. But corporate cost-cutting already is taking its toll -- this year, two large Maryland HMOs have changed hands, part of an industrywide consolidation.
Even as HMO enrollments rose, heightened competition brought financial troubles to CareFirst, which merged into Blue Cross and Blue Shield of Maryland in March, an action overseen by state regulators. The Johns Hopkins Health Plan, finding it increasingly difficult to offer a bevy of health-insurance products and meet rising overhead costs, sold its well-managed HMO business to Prudential Insurance Co. in May.
The era of HMOs existing as free-standing businesses appears to be winding down. Consolidation with an insurance company or an HMO network is the name of the game.
Nearly a decade of cutthroat price competition among HMOs depressed profits throughout the industry. As recently as 1988, for example, 36 percent of all HMOs in the United States lost money, according to Interstudy Inc., a non-profit health-care policy firm.
HMOs have reversed that trend in recent years. By 1990, only 17 percent of the nation's HMOs were unprofitable. But HMOs still face intense pressure: They must keep their premium increases below those of traditional insurance indemnity health plans, or risk losing favor.
And they must cope with fierce competition. One example: In late July, Prudential pulled out of Cecil and Harford counties following a business disagreement with its health-care provider there, Upper Chesapeake Health System Inc. Within weeks, four other HMOs flocked to the area, vying to serve its 15,000 HMO customers.
What does all this mean to customers of the 21 HMOs serving Maryland?
"What's really happening is that health-care costs will continue to increase -- that's virtually a given," Dr. Weiner said. "The degree to which these costs are passed through to patients depends largely on decisions made by the employers."
About 85 percent of HMO customers get their coverage through employers, who do not always pass through premium increases, Dr. Weiner said. "Clearly there's a threshold level, and I think most large corporations in America have hit that level."
In response, some employers have essentially started insurance firms of their own. These "self-insured" plans entail putting money into a pool, which is used to pay health claims.
"In Maryland, organizations like MD-IPA and HealthPlus have been much more flexible in working with employers, allowing them to self-insure . . .," said Dr. Roger S. Taylor, head of national health care for the Wyatt Co., an international employee benefits consulting company. "Those HMOs that are more flexible with both the benefits and the ways they set their premiums for employers are increasingly more popular with employers."
Self-insurance, which works best for large companies, allows employers to save money by not having to deal with state bureaucracy and its attendant paperwork, Mr. Taylor said.
"You might say Maryland is a good example of why employers are so interested in self-funding," he said. "The Maryland legislature has been very active in trying to regulate health-care coverage, control managed care options and mandate certain benefits on insurance plans."
An HMO often is paid to manage the pool, but such services are less lucrative.
"The only benefit we're getting from that is a reimbursement of our administrative costs and some profit margin," said Nannette G. Henderson, president of the Maryland Association of Health Maintenance Organizations and of Greenbelt-based HealthPlus.
Another cost-cutting trend is for companies to demand lower premiums from HMOs, based on previous year's claims. Firms also are granting employees limited coverage outside HMO plans, as long as the employee kicks in a co-payment covering up to 40 percent of the treatment.