State Legislatures Magazine: March 1999

Editor's Note: These articles appeared in the March 1999 issue of NCSL's magazine, State Legislatures. To order copies or to subscribe, contact the marketing department at (303) 364-7700.

Managed Care: Where Do We Go from Here?

Pro-consumer Legislation
Managed Care Here to Stay
A Systemic Problem
Consumers Need Help
The Future

Managed Care Facts at a Glance

Innovative and Controversial Ideas

Managed Care:
Where Do We Go from Here?

In 10 years, managed care has changed the landscape of American health care, saving money, simplifying paperwork and engendering lots of new legislation — but all the problems haven’t been solved.

By Richard Cauchi

When Helen Hunt’s character in the movie "As Good as it Gets" blasted her managed care plan for not giving her asthmatic son the help he needed, audiences cheered.

Is dissatisfaction with managed care organizations as widespread as headlines lead us to believe? Or are we in danger of "over-managing" managed care, defeating its purpose with micro-oversight of health care decisions?

Certainly the 1998 congressional debate about patient protection legislation caught the public’s ear. Meanwhile, the real action has been in state legislatures. Between 1994 and 1998, 39 states approved "patient protection acts" or "comprehensive consumer bills of rights" affecting managed care. Eleven of those were adopted in 1998. The remaining 11 states have considered similar legislation.

Much legislative activity is driven by consumer complaints. For example, legislators heard about women being released from hospitals less than 24 hours after delivering babies because managed care plans wouldn’t pay for longer stays. Under this so-called "drive-through delivery" practice, most women and babies did fine, but some had serious problems. In the first year after this issue made headlines, 27 states enacted laws requiring coverage for longer stays, typically 48 hours.

In Colorado, a personal story came from a mother who also happened to be a legislator and chair of a legislative health committee. During a 1998 managed care hearing, she told of her daughter, "Marcia," who was diagnosed with uterine cancer at age 30. Marcia’s older sister also had the disease at a young age, resulting in a hysterectomy several years previously. With Marcia’s diagnosis and family history, her doctor recommended a full hysterectomy. But her health maintenance organization (HMO) said "no, it would pay only for a partial procedure," and continue to monitor her condition.

"I believe the HMO made its decision based on financial considerations and not on what was best for Marcia," asserts her influential mother. She believes legislators play an important oversight role to protect consumers.

Another issue making headlines concerns access to emergency services under managed care plans. When 2-year-old Michael Silver cracked his head open on Thanksgiving eve several years ago, his parents rushed him to the nearest emergency room, five minutes away. The child received three layers of stitches from a plastic surgeon, but the family’s HMO refused to pay the $560 bill because Michael’s case didn’t constitute an "emergency" under the plan. Nor had his parents contacted the HMO for prior permission to take him to a facility outside the network.

"My son was gushing blood. I was scared to death, and my hands were holding his wound shut," reports Michael’s mother. "It certainly was an emergency in my mind, and it never occurred to me to take him the 40-minute drive to our HMO’s closest emergency center or to call them up. Getting my baby immediate help was all that was on my mind."

In response to similar cases, more than 30 states have implemented "prudent layperson" standards to make getting emergency care easier. Such laws require plans to cover emergency care if a "prudent layperson" believes that immediate treatment is needed.

Personal stories such as Marcia’s, Michael’s and others made managed care a top constituent issue for many state legislators in the 1990s. With lives, livelihoods and votes at stake, states acted decisively. Among the 50 states, nearly 900 laws passed that affect managed care, according to NCSL’s Health Policy Tracking Service (HPTS).

PRO-CONSUMER LEGISLATION
State laws addressing these issues have not followed any single model act, although insurance regulators, physicians and consumer advocates have circulated several such examples. In fact not all were high visibility packages. Many of the 900 state laws addressed particular issues reported by consumers negotiating the managed care system, such as gaining access to a specialist, being fully informed of medical options, getting coverage for emergency room services, obtaining 48-hour hospital coverage following birth for maternity cases, receiving adequate hospital coverage for mastectomies, appealing a denial of coverage for a specific service or procedure, or even just knowing what is covered.

Along the way, legislatures also have addressed structural and financial issues not as visible to the individual enrollee. These include: requiring consumer "report cards," requiring all HMO medical directors to be licensed MDs, allowing more providers to join health plans, requiring advance notice when terminating doctors and other providers and requiring prompt payment for doctors or specialists.

Many of these recent laws expand state authority or mandate additional action or services. However, at the same time, the legislative sponsors generally made it clear that they did not intend to restrict enrollment or hurt the growth of managed care plans. In fact, some would say the pro-consumer regulations may well make HMOs more acceptable and ultimately more popular.

With all these laws in effect, has managed care finally been "managed?" For 1999, many legislators would answer, "No way!" An HPTS survey of legislators active in health issues conducted in December indicates that managed care in general is still a priority in all 50 states and D.C. "

Others worry, however, that overregulation of managed care plans may defeat their very purpose. While the horror stories make the headlines, the reality is that managed care has become a way of life for most Americans. At last count, more than 160 million people were enrolled in some form of managed care. These plans appear to serve the needs of many enrollees, especially those with few major health problems. And they do so with fewer complaints than most people believe.

Some legislators are looking for a middle ground. "Yes, I believe some regulation is necessary, but we don’t want to drive HMOs out of business," says Representative Gregg Underheim, chair of the Wisconsin Assembly Health Committee. He adds, "Some HMOs behave very appropriately. Clearly there are some bad actors in the HMO industry and they are making the environment more difficult for those who have operated ethically and efficiently."

"It was really the private employer who caused the rapid growth of managed care over the last decade," says John Iglehart, founding editor of Health Affairs, a leading national journal. "It wasn’t really until the private sector came along with the private employer’s contribution and decided that rather than put it into indemnity insurance, which was uncontrolled at that point, they would move into managed care.

"So we should remember that the conflict and the commotion really isn’t a consequence of governmental action . . . governments we all like to kick around; it really was a result of private decision making," he says.

MANAGED CARE HERE TO STAY
Agree or disagree, policymakers recognize that managed care is here to stay. The business community accepts the analysis of health leaders such as Stanford University’s Dr. Alain Enthoven that managed care has the best chance of increasing access, improving quality and moderating the rate of increase in health care costs.

For private employers and governments alike, the biggest HMO success story is cost savings.

"The role of managed care is to attack unnecessary and inappropriate costs," says Stephen de Montmollin, vice president of AVMed Health Plan of Florida, a managed care plan. "Double digit inflation caused millions to lose access to affordable health care insurance," he emphasizes. "In 1988, the average per employee cost for medical benefits in the United States shot up 18.6 percent; in 1989, another 16.7 percent; in 1990, up 17.1 percent; in ‘91 up 12.1 percent. With managed care, these figures have been reduced dramatically, with increases below 2 percent for 1998. In 1997, premiums actually decreased by 1.3 percent."

Citing several national and local polls, de Montmollin also says that most Americans, including those enrolled in managed care plans, are satisfied with their health care coverage. He also warns that burdensome regulations will result in higher costs, and that the alternative to a managed care system often is "uncoordinated care. Don’t put the entire managed care system at risk in the absence of conclusive evidence that there is some systemic problem."

A SYSTEMIC PROBLEM?
Others believe there is a systemic problem. "The U.S. health care system is in chaos," asserts Ted Lewers, a vice chair of the American Medical Association’s executive committee. "A lot of the satisfaction statistics that you’ve seen are from people who probably have not used the health care system—who have not had any chance to know whether it works or doesn’t work.

"For example, if you look at mental health care, only 7 percent of Americans use those benefits. So if you look at your satisfaction questionnaire, you’d say you’re satisfied with your mental health coverage, even if you haven’t used it," he points out.

Many people aren’t aware of the innovative things HMOs do, de Montmollin counters. Commenting on the Helen Hunt character and her asthmatic son, he says, "The irony is that many HMOs have been pioneers in putting together comprehensive asthma programs that help children control their symptoms and reduce the need for emergency hospitalizations."

In fact, says de Montmollin, the most noteworthy thing about the movie scene is that a single waitress in a diner has health insurance for her son at all. "Wow, that’s fabulous—fewer than half the women in her situation have any access to coverage," he says.

Rising costs make it harder for businesses and governments alike to provide coverage for the nearly 44 million Americans who remain uninsured. Managed care has been touted as a way to save money that can be used to cover additional people. However, the numbers of uninsured have increased in the past 10 years.

Compared to other insurance, "HMOs generally offer more benefits, including coverage for prescription drugs, and fewer deductibles and copayments," notes William Falk of Towers Perrin, a research firm in Chicago. He expects most employers to stick with HMOs. They are "still an attractive alternative."

But striking a balance between consumer protections and micromanagement remains a challenge.

CONSUMERS NEED HELP
Establishing publicly funded consumer assistance or "ombudsman" programs may be one way to address consumer needs without overregulating managed care plans.

"The public is very confused," says Ron Pollack, executive director of Families USA, a consumer advocacy group. He says the managed care backlash comes from a variety of factors. "I think people clearly do not understand today what their choices are, what their rights are and how they can claim those rights. To the extent that we’re really going to address the core of people’s problems or concerns, we need to provide some specific assistance to consumers."

Pollack says consumer assistance programs would give people information about plans, help them understand their choices and rights, answer questions through free phone access, and help those who want to file an appeal. He also says that such programs can help the managed care plans, employers and regulators. "They can provide a basis for getting quick information about what the problems are that arise as our health care system changes.

"A ‘patients bill of rights’ should not dictate clinical decisions or redesign health benefits packages," Pollack says. "But such state laws are very important because they help to ensure that patients get the care they need, when they need it. And they give patients and physicians effective tools to fight HMOs’ wrongful denials and delays of care," he explains.

THE FUTURE
Evidence points to continued lively and high visibility debate about managed care, including new state laws, renewed congressional debate and more indepth studies of the effect of the recent state laws.

"What will eventually shake out as the health care system in the next century likely will be a muddle of market, policy, regulatory and professionally driven solutions," says Edward O’Neil, director of the Center for the Health Professions at the University of California.

"Such pluralistic approaches are typically the American way of doing things. The best solutions occur when we are clear about our aims and use the various vehicles of market, policy and professions to implement what we desire. But in this case, we do not have the capacity to generate a community or public definition of aim. Until we find a genuine voice for the varied interests in health care, we are likely to continue to suffer the cacophony of competing interests clashing over the $ 1.1 trillion that is health care in America, and to blame managed care for it all."

Richard Cauchi covers health insurance for NCSL at the Denver office. NCSL staff Molly Stauffer, Marla Rothouse and Joy Johnson Wilson contributed material used in this article.

©1998, National Conference of State Legislatures. All rights reserved.

Managed Care Facts at a Glance

After actually decreasing 1.3 percent in 1997 (from $434 to $429 for family coverage), health maintenance organizations’ (HMOs) average monthly premiums are rising to an estimated $460 in 1999.
HMO enrollment reached 83.7 million in 1997.
Enrollment in preferred provider organizations (PPOs) reached 89.1 million in 1997.
Insurance companies own 60.4 percent of PPOs.
Fifteen of the top 25 HMO plans are nonprofits.
There were 757 licensed HMOs and 1,035 PPOs operating in the United States in 1997.
Managed care enrolled 46.7 percent of the Medicaid population at the end of 1997 (14.6 million people).
HMOs enrolled 14.9 percent of the Medicare population in 1997 (5.6 million people).

Some Standard Features

After five years of state actions some clear trends have emerged for managed care. At least 20 states have enacted laws with these requirements:

Any willing provider: In response to complaints that consumers want to use a local drug store, 22 states require that managed care organizations allow any pharmacy to be a provider to their enrollees; several states also include doctors or other providers.
Bans on gag clauses: Forty-six states have laws prohibiting any agreement that limits doctors’ ability to inform patients of treatment options, especially if some choices may cost the insurer more. A 1997 federal law now bans gag clauses for Medicaid and Medicare managed care.
Bans on financial incentives: Twenty-two states prohibit a managed care plan from rewarding doctors for performing a less costly procedure or prescribing a less costly drug.
Direct access to women’s health specialists: Thirty-six states now allow women to see an obstetrician or gynecologist without first getting permission or a referral from a primary care provider.
Hospital stay after childbirth: Forty-three states require reimbursement for (typically) at least a 48-hour maternity stay. A federal law requiring coverage for a 48-hour stay took effect in January 1998.
Independent review of denials: Twenty-one states now require an independent or "external appeal" panel to evaluate the validity of denied care. Once opposed as too costly by the managed care industry, this idea now is embraced as a "reasonable" alternative to court suits. In Texas, an HMO association actually urged a federal judge to retain that state’s external appeals process. Aetna, the nation’s largest managed care company, has announced it will voluntarily allow such appeals for enrollees in 30 states, as of June 30, 1999. In addition, all 50 states require some form of internal appeal for denials of care.
Prudent layperson standard for emergencies: Thirty-one state laws specify automatic coverage for emergency medical conditions "of sufficient severity, including severe pain, that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of medical attention to result in placing the person’s health in jeopardy."
Financial standards and licensing: All 50 states provide for structural regulation of managed care organizations, usually requiring a "certificate of authority" to operate, financial solvency standards, periodic reporting and filing of operational plans.

Innovative and Controversial Ideas

As the managed care debate evolves in the media and on the floor of state legislatures, new (some might say far-reaching) provisions have been enacted by selected states:

The right to sue your HMO: Texas is the first state to enact an "insurer liability" provision that holds health maintenance organizations liable for health treatment decisions. Missouri used another approach by repealing an earlier law prohibiting the "corporate practice of medicine." Health plans decry right to sue provisions and say they will prompt premium increases of up to 10 percent; in addition federal law limits the reach of states’ authority. However, 31 states reported that this is a legislative issue for 1999.

Report cards: In an effort to assist consumers in choosing a plan, 11 states now require publication of an evaluation booklet, commonly called a "report card." In Vermont, for example, the public report card will measure how well plans are complying with about 60 selected state laws and regulations. "Ultimately it will be a great tool for consumers," noted William Little of Kaiser Permanente, Vermont’s largest HMO.
Specialists as primary doctor: For people with a single chronic health problem, the usual procedure of calling a primary care provider first can be frustrating and unproductive. In 1998, Indiana, Kentucky, New Mexico and Pennsylvania joined New Jersey, New York and Texas in allowing an enrollee to select a specialist (such as a neurologist, a mental health provider or a cancer specialist) to be their main provider.

Medical director requirements: Some managed care organizations’ chief officers have business degrees rather than medical credentials. In the past two years, 18 states have established specific qualifications and responsibilities for HMO medical directors; most require a current in-state medical license. Several states make such directors "responsible for treatment policies...of the carrier," which means they could be legally liable for actions of their staff.
Consumer assistance/ombudsman programs: Over a dozen states established ombudsman programs for Medicaid managed care. Now California, Maine and Vermont have launched such publicly funded advocacy programs for private market enrollees, and other states are looking closely at these examples.

What Else to Look for in 1999

Higher premiums: After several years of almost level rates charged to employers and consumers, premiums are headed up. The latest survey, released in January, confirmed HMO premiums are rising 8 percent to 10 percent this year, the largest jump since 1993 (the year of President Clinton’s national health reform proposal). At the same time, traditional indemnity health insurance rates also are rising 8 percent, but HMO premiums remain about 20 percent cheaper.

However, copayments and deductibles will become higher and more widespread, as many employers seek ways to continue health benefits for employees without footing the entire bill. Some state regulators may again examine the possibility of capping certain insurance rates.

In the private market, the Midwest Business Group, representing 110 large employers in 11 midwestern states, is "strongly encouraging members to hold the line on premium renewals and to consider tactics such as freezing enrollment in plans where there are large rate increases, raising copayments and deductibles for employees, and warning employees that more drastic changes might be contemplated," according to Larry Boress, the group’s vice president.

Prescription costs: Most analysts, including the federal Health Care Financing Administration (HCFA), say the main cause of 1999 rate increases is pharmaceutical prices, which are up about 17 percent since last year. Perhaps that’s why 24 legislatures say they will look more closely at drug costs, either through regulating formularies and generic substitutes or acknowledging special drug copayments.
Slow-down of government program enrollment: After almost a decade of enthusiasm for enrolling Medicaid consumers in managed care, the focus is shifting. There is more emphasis on enforcing the rights of consumers, as well as legislative studies and audits to determine if cost savings are real, and if they can continue. Meanwhile, a push to enroll Medicare recipients in managed care collapsed in a high-visibility dispute between HCFA and managed care organizations about reimbursement rates. HMOs in 29 states announced they were pulling out of the Medicare market, affecting over 450,000 seniors. This dispute may fuel state legislative oversight hearings and investigations, although the resolution remains under federal jurisdiction.

Direct contracting: Many large employers and some smaller ones are watching very closely an experiment in Minneapolis-St. Paul. A business consortium has pooled resources to contract directly with doctors and hospitals to provide health care, effectively bypassing HMOs. Policymakers in some other states may conduct their own studies to determine how direct contracting might work in their regions.
Voluntary improvements: The American Association of Health Plans is putting its faith in improving quality and in convincing consumers that new regulatory burdens will make things worse, says Karen Ignani, trade association president and corporate executive officer. She expects a "continued evolution" that puts consumers in the driver’s seat by giving them more choice of providers and benefits. However, legislators remain skeptical. As Massachusetts Senator Mark Montigny, chair of the Senate Ways and Means Committee and chief sponsor of a 1999 consumer rights bill, notes: "Health care decisions are now driven by third party money managers, obsessed with the bottom line. A comprehensive managed care reform bill will restore the provider-patient relationship and ensure quality health care delivery at reasonable cost. Angry consumers will demand reform in 1999 and we must act with an aggressive bill that puts patients first."

Health vouchers: Some private sector employers are proposing a simplified voucher system, providing each employee with a standardized monthly payment. This could get employers out of the health decision business in which they have to preselect a limited list of health plans. However, some policymakers question whether the average employee will be able to pick up the remaining costs, especially of family coverage. Expect to see some state interest in either encouraging or further regulating such arrangements.
Congressional action. Both parties in Congress and the Clinton administration have said "patient protection" is a top priority for 1999. In the wake of last year’s debate over sharply differing bills, key questions are not yet resolved: Will a new federal law replace or preempt existing state laws, especially when the state law is stronger? Will it fully cover other insurance plans that now are outside state regulatory authority?

"The future of state regulation of insurance hangs in the balance of the ongoing debate on regulating managed care," notes Joy Johnson Wilson, director of NCSL’s Health Committee.

For more managed care information, order these NCSL reports:

— Health Care Legislation, 1997 (#6669) and 1998 (#6674) editions.

— 1999 State Health Care Priorities by the Health Policy Tracking Service (#3029).

— Issue Brief: Comprehensive Consumer Rights Bills, by the Health Policy Tracking Service (#0233).

— Major Health Care Policies: 50 State Profiles, 1998 (#3027).

— Also check out NCSL’s Health Care Web index:

www.ncsl.org/programs/health/hc

For NCSL publications call the Marketing Department at (303) 830-2054. The Health Policy Tracking Service material is also available from Jeff Strandberg in NCSL’s Washington, D.C., office: (202) 624-8695.

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