When consumer-directed plans met managed care: the growing popularity of consumer-directed health care doesn't mean the demise of traditional managed care, but rather a coming together of the two types of products.

After several decades, is managed care dead or on the decline? Health plans say no.

Is managed care evolving into a new realm? For many health plans, the answer is a resounding yes.

"It's not your father's managed care anymore," said Mohit Ghose, spokesman for America's Health Insurance Plans, a national trade association with more than 1,300 member companies providing health benefits.

The advent of managed care on a large scale in the late 1980s and early 1990s was centered on what employers needed most--immediate cost containment. Today health insurance plans place greater emphasis on consumers--putting them in the driver's seat by providing cost and quality information, plus health-information technology to streamline processes and help them focus on improving the quality of care. But as the popularity of consumer-centric health insurance products flourishes, what that will mean for traditional managed-care plans is a burning question on some insurers' minds.

A New Direction

A best-of-both worlds situation is a likely answer, said Robin Downey, head of product development for Aetna Inc.

The premise on which managed care--particularly health maintenance organizations--was built included closed networks, tight utilization management and capitation. For the most part, those days are gone with a loosening of plan features and a blurring of the lines between products. "It's now difficult to figure out what HMOs mean anymore," said Alexander Domaszewicz, a principal and senior consultant with Mercer Health and Benefits.

"Now in a typical HMO, for instance, many patients can choose to go directly to a specialist without first consulting a primary care physician," said Beth Bierbower, vice president of product innovation for Humana Inc. Managed care's evolution is a result of consumers saying they want direct access to providers and control over their health care, she said.

Also, "aspects of consumerism like engagement models, cost and quality transparency, and choice and convenience mechanisms, are being layered onto what we traditionally thought of as products like PPOs [preferred provider organizations] and HMOs," said Tom Richards, senior vice president of product for Cigna Healthcare.

Traditional managed care brought many positive things to the health-care industry over the past three decades, including improved quality of care and reduced costs, Domaszewicz said. Now, managed care is evolving and leveraging another dimension in the solution, what he deems "the least utilized health-care resource"--patients. "Consumerism is designed to get patients more involved and informed about their care--a result that brings not only better quality results but also lower costs for both participants and plan sponsors," he said.

Another change, Domaszewicz said, is "things like network discounts that were central to managed care are things that had to be included in consumerism programs, even if they don't line up philosophically, because you'd be taking too big a step backwards if you eliminated them," he said.

Managed-care providers are feeling the effects. "We may have started out as an HMO in 1982 but about 15 years ago we began broadening out to offer PPOs, and within the last few years began offering consumer-directed products," said David Oliker, president and chief executive officer of MVP Health. "If we're going to be successful in meeting the value proposition of satisfying the needs of our customers, then we have to offer a full menu of products--including managed-care plans." About 80% of MVP Health's members currently reside in a managed-care product, but the number continues to slightly decline, he said.

Preparing the Way

The evolution of health-care coverage requires companies to approach the business differently, said Richards.

Preventive services and wellness likely will move even more to the forefront. "There was a tendency for people sometimes to forget about those services in managed-care programs, but with consumer-directed we're focused on getting that work done and putting preventive services up front so they can save money in the long run,' said Downey.

"One of the biggest challenges is addressing the affordability crisis," said David Knott, senior vice president of global strategy and technology consulting firm Booz Mien Hamilton. "In the early days of managed care there was a disproportionate level of consolidation on the health-plan side relative to providers. Providers tended to be smaller and more fragmented, and health plans were able to extract deeper discounts that added real value for customers. However, providers were quick to learn those lessons and pursue in-market consolidation where they could substantially increase their negotiating clout."

Knott said that consolidation raised serious challenges for some plans' ability to provide ongoing management of health-care costs. "Some felt their discounts with providers were eroding, and they tried to shift gears and look for ways on the utilization side that they could add value, but in ways that avoided less targeted approaches to care management that characterized the early days of managed care." An answer to the challenge, he said, involves health plans investing substantial sums in information technology and informatics to make more targeted medical management work. "It sounds simple, but it's difficult to do well" he said.

MVP Health's Oliker said that companies that originated as managed-care organizations have to adopt an additional mindset. "We need to be thinking about our information systems and business practices to support different products. Our history is in managed care, but our future is as a fill-service health-benefits company."

Preserving the Good

Although many health plans are making adjustments to accommodate consumerism, many also are holding on to characteristics of managed care.

"The bull of health plans' business remains in managed care, and they realize that when they do a consumer-directed strategy that it's not a narrow, new consumer-directed health plan or a high-deductible health plan strategy, but it's about the entire company and how what's traditionally been a B2B [business-to-business] company makes the transition to a B2C [business-to-consumer] company with a two-step sale through the employer to the individual," Knott said.

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While most research points to positive feedback about consumer-directed health care, some studies aren't as optimistic. For instance, a satisfaction survey by Employee Benefits Research Institute said consumers are dissatisfied with the plans, said Humana's Bierbower. "But when HMOs were first introduced, consumers may have disliked them, too, initially." HMO members today are one of the most highly satisfied in plans, she said.

Tomorrow's Health Coverage

Consumer-directed plans sitting on top of managed-care products will likely become a permanent fixture in the market. Independent technology and market research company Forrester Research predicted that by 2010, about 25% of insured individuals will be in some form of consumer-centric health plan, with the majority in high-deductible health plans coupled with health savings accounts.

But that's still a while off. "Enrollment in HSAs and HRAs [health reimbursement accounts] across the United States still remains small," said Downey. "But that's changing, and employers are looking for us to provide them more information about the products, and they want to talk with other employers who have had success with the plans."

The plans offer advantages and disadvantages. "Providers had concerns under traditional managed care about plans disrupting the patient-physician relationships that they believe are critical to high levels of care. However, under the consumerism model, they don't have some of the gates and checks and intervention by plans because there are now market mechanisms at work," said Booz Allen Hamilton's Knott. For consumers, he said, the upside is that they have greater control over how their health-care dollars are spent and where and when they can access care.

MVP Health's Oliker foresees a continued hybridization of traditional managed care and consumer-directed health products going forward. "It's premature to declare consumer-directed a clear winner. Adoption rates are still too low, and there's mixed reports from those who had undergone a coverage change under the new products."

But AHIP's Ghose thinks it's more than just a hybridization of products that will change today's health care. "Three major factors continue to affect our industry: price competition, the willingness and ability of employers and individuals to seek out new health-care options, and the need for better information about quality of care being provided. So it's not necessarily a particular model of care or coverage, but rather it's based on a model of satisfying the end-user about value of every dollar they're spending in the health-care system," Ghose said.

Key Points

* Consumer-directed health plans aren't causing the decline of managed care but rather a hybridization of the best features of the two.

* Some health plans say the lines between managed-care products, such as HMOs, PPOs and point-of-service plans, have recently blurred.

* In the hybrid plans, as well as managed-care plans, insurers will need to make more information about providers and health care available to policyholders.

Learn More

Aetna Health and Life Insurance Co.

A.M. Best Company # 08189

Distribution: Brokers, consultants, retail network (pharmacy products)

Cigna HealthCare

A.M. Best Company # 68124 (Cigna Insurance Group)

Distribution: Agents and brokers

Humana Health Plan Inc.

A.M. Best Company # 68898

Distribution: Agent/brokers, direct to employees, direct

MVP Health Plan

A.M. Best Company # 68567

Distribution: Brokers, consultants, direct sales force

For ratings and other financial strength information about these companies, visit www.ambest.com.