As more sophisticated tests and procedures emerged, providers put them into play, prompted by patients who demanded access to the latest medical technology and as a defense against the rising tide of malpractice claims.
Managed care came on the scene as a way to reduce cost by trimming out inappropriate care. Community rating replaced fees for service and the accompanying incentives to order more referrals and tests that indemnity plans fostered. This approach seemed reasonable, and for a while there were significant savings in managed care plans.
Now, though, critics argue that managed care plans have gone too far in their efforts to cut cost by denying essential treatments and underpaying service providers. As the fight gets progressively nastier and the shouting matches get even more long-winded, a number of health-plan administrators and industry watchers are wondering whether the news will hit them where they live, and how hard it will hit them. And what they can do to soften the blow.
"There is an ongoing concern about employees having adequate coverage at reasonable prices," said Judy Weil, executive director of the Massachusetts-based Northeast Human Resources Association.
Consider: North American Medical Management, which represents thousands of doctors nationwide, this spring threatened to sever its ties to managed care giant Humana Inc. of Louisville, Ky., unless Humana paid $10 million that NAMM alleged it was owed.
A few weeks later, St. Joseph Health System of Orange, Calif., said it would not accept any new HMO patients from its 17 managed care companies, citing $45 million in losses it reportedly sustained on its HMO contracts. Barely a week later, Greater Newport Physicians threatened to cut its contract with its largest managed care client, PacifiCare Health Systems Inc. of Santa Ana, California unless the HMO agreed to pony up more money for care.
"I do think it's somewhat of a trend, but it's going to depend on the area," said Karin Landry, the group and health care practice leader for Watson Wyatt Worldwide, an international benefits consulting company.
"When you consider some of the providers in the New England area, with its large penetration of managed care, it may be difficult to say what will happen there versus some place where managed care has not reached the same level of penetration. I also think it's a matter of supply and demand."
Nasty little shouting matches aside, managed-care outfits are now dealing with ghastly levels of losses after 10 years of lustrous performance -- if you go by popularity and fiscal conservatism: It's expected that by the end of this decade one out of two Americans will be enrolled in some sort of managed care program; and managed care can be credited with helping to rein in the costs of the health care system.
Last year, for instance, Harvard Pilgrim Health Care of Brookline, Mass., posted tens of millions of dollars in losses and went through desperate measures to staunch its alarming flow of red ink.
The state's Division of Insurance placed the company in receivership from which it emerged in May.
A few years earlier, Blue Cross and Blue Shield of Massachusetts, the state's insurer of last resort, underwent a glaringly public process of regulatory overview in light of its financial woes (In 1997, the Massachusetts company was dead last among the nation's 52 Blue Cross insurers in terms of fiscal stability, according to Weiss Rating Inc. of Palm Beach Gardens, Fla.).
"For several years HMOs just went crazy to get market share, and they did that, but in hindsight, they did it at the expense of running a good business. Now they're feeling the crunch of financial losses," said Raylana Anderson, a Peoria, Ill.-based human resources specialist and immediate past chairwoman of the compensation and benefits committee for the Society of Human Resource Management.
"We're really looking at so many different sides of this, we don't know which trend is going to come true."
Still, managed care is not the only segment of the insurance industry guilty of slashing prices to lure customers. The practice is par for course with many insurance sectors, including life and property-casualty (the results have been especially pronounced among workers' compensation providers).
The irony is that until the market hardens -- that is, until policyholders suddenly start making a slew of claims on their policies, which often leads to jacked-up charges by coverage providers -- insurers will continue to slash rates and offer discounts in an effort to retain their holds on the market, despite the effect the practice has on their bottom lines.
And then, there are the hospitals. Over the last few years, institution after institution reported huge annual losses, blaming them on Medicare and Medicaid reimbursement cuts and low managed-care rates. Hospitals blamed managed care organizations for not fronting their fair share on everything from basic medical visits to annual reimbursements for the coverage of various uncompensated care pools.
Where does this leave patients? What can companies do to make sure their health plans and their employees don't go through the wringer as the turmoil plaguing the managed care industry gets more pronounced? No one quite knows.
Probably the only thing that can be considered definite is that managed care is as much a staple of office life as, well, the stapler: No company is going to survive without it. Once considered a perk that companies could offer at their discretion, health coverage is a benefit that even the fast-food industry cannot eschew if it wants to attract and retain workers.
So, what can you do?
"It's not just a simple answer. It's different for each organization. Some will accept increased costs and some will ask employees to accept increased costs. Really, the whole issue focuses on pricing. It's a constant war on how to get a bigger piece of the pie. Until all that fleshes out, there's no telling what the answer will be," said Jerry Mattern, manager of human resources for Quebecor World in St. Cloud, Minn., and chairman of the benefits and compensation committee for the Society of Human Resources Management.
"You and I as consumers, we're sitting here wondering what's going to happen. You're seeing a lot of issues tied to financial bills in Congress. You've got increased regulation, which causes more cost, which is driving more of the problems." Some would argue that the answers to the managed care debacle should come from lawmakers.
Dr. Paul M. Ellwood, considered by many to be the founder of managed care, lambasted the system in a speech at Harvard University last year. Ellwood said that hospitals and health plans were not providing adequate care to patients. While the private sector needs to take the lead in fixing the problems of the managed-care system, government regulation would be necessary, he said.
And indeed, both the state and local level have seen a plethora of legislative initiatives over the last few years aimed at a so-called reform of the industry. The initiatives have attempted to address issues ranging from patient confidentiality to lengths of hospital stays.
Lobbyists, regulators, insurers, and doctors have argued themselves blue in the face over whether reform is necessary in light of the financial woes plaguing many of the players.
It may seem hopeless, but industry experts maintain there are a few things that human resources managers can do to ensure that their employees are not without some sort of coverage. The main thing is to make sure that the companies with which they contract are not going to implode fiscally any time in the near future.
"The basics are still going to be important," Anderson said. "Check the A.M.Best rating, do some homework on whether things are financially stable. As long as you stick with a good decision-making process, that will probably be your best protection." Oldwick, N.J.-based A.M. Best Co. (www.ambest.com) has a free company-rating search on its Web site that allows you to view the insurer's profile. Or you can buy a company report, which contains a detailed overview of the insurer's financial stability.
Another likely resource is the National Committee for Quality Assurance, a private, nonprofit group that assesses the quality of managed-care plans. The organization also has an accreditation program for these plans. The NCQA's Web site (www.ncqa.org) and other managed-care industry watchdog sites provide easily accessible information to a company's financial health.
Also working in an employers' favor is choice. "They could look at the types of plans they offer and move from just managed-care plans to other platforms: points of service plans and PPO plans with out-of-network options. That means an employer who doesn't want to go to a provider has a choice of going to those plans," said Landry, of Watson Wyatt Worldwide.
Preferred provider organizations are a bit more expensive than traditional HMOs, but they do allow employees more control over the coverage they get.