Health insurance is increasingly difficult to afford. As reported in the 2018 Milliman Medical Index (MMI), the typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan will have annual healthcare expenditures totaling approximately $28,166. Californians are not exempt from this trend, also paying increasingly high costs for their healthcare. According to the 2013 Berkeley Forum report, employer-sponsored health insurance premium rates were projected to nearly double from 2011 to 2022, ultimately reaching $31,728 for family coverage in 2022. Those premium increases will be borne by both employers and employees. According to the MMI, on average premiums are funded approximately two-thirds by employers and one-third by employees through payroll deduction.
Some good news for Californians is that they would likely be paying a lot more without managed care plans that use the delegated model. In brief, the term “delegated model” describes a health insurance plan where financial risk for healthcare services is transferred from an insurance company to healthcare providers (e.g., physicians or hospitals). Most commonly this involves the insurance company paying a fixed, per capita dollar amount (a capitation rate) to a group of physicians, and the physicians assume financial responsibility to provide all professional services for each health plan member. They may also have full or partial risk for hospital services provided to those same members. In California, capitation can only be used in health maintenance organization (HMO) plans. Other common types of plans, PPO-style plans and other fee-for-service (FFS) plans, cannot use capitation.
Measuring the impact of the delegated model on healthcare expenditures is tricky for at least two reasons. First, the average person who enrolls in an HMO plan might have a different health status from the average PPO/FFS plan enrollee. For example, they might be younger, or just healthier than average. Second, per capita healthcare costs vary by geographic area, for a variety of reasons. HMOs tend to be concentrated in urban areas, while PPO/FFS plans are prevalent in all areas of the state.
IHA Atlas data quantifies savings
Fortunately, data published by the Integrated Healthcare Association (IHA) allows us to compare per capita healthcare expenditures for HMO versus PPO/FFS plans, adjusted for differences in the mix of members by health status and by geographic area. Results indicate that for commercial health insurance plans (i.e., non-Medicare, non-Medicaid), total healthcare expenditures per capita are lower under HMO plans than under PPO/FFS plans, as shown in the graph below. They were 5% lower in 2013 and 7% lower in 2015.*