Top 20 States by HMO Enrollment, 2004 and 2005

There's no doubt that HMO enrollment has been declining in recent years, experts say. Various factors explain this enrollment decline.

Most of the shift has been from HMO to PPO plans as consumers look for greater choice in care providers and less-restrictive access to expensive tests and procedures, says Ricardo Guggenheim, MD, vice president, clinical development and design, McKesson Health Solutions. "Consumers still have a bitter taste in their mouths for HMOs that is a carryover from the 1990s," Dr. Guggenheim says. "Consumers remember the restrictions and hoops they had to jump through to get care, which was a totally new experience for them. Interestingly, just as HMOs started to become less restrictive, thereby pushing premium costs pretty parallel with PPOs, the long-standing demands from consumers for more choice, which they equate with PPOs, largely led to the shift in enrollment from HMOs to PPOs."

DECLINE AND SHIFT

The chart data indicate that 60% of the states have experienced a decline in HMO growth from 2004 to 2005, including two of the top three in enrollment. Notwithstanding the additional 11 months for 2005, HMO penetration in California increased 1.3% from 2004 to 2005. "Because penetration increased while total HMO enrollment decreased, there may be a shifting from commercial to Medicaid and Medicare HMO enrollment," says Joseph M. Mack, MPA, senior vice president Beecher Carlson Healthcare Practice, in Irvine, Calif.

Changes in the regulatory and legal environment in which HMOs operate undermine the ability of HMOs to administer their programs in accordance with the assumptions upon which the arrangement is based, explains Cynthia Marcotte Stamer, PC, a member of Glast, Phillips & Murray, PC, Dallas.

"Patient protection, any willing provider, independent review, HMO liability, prompt pay and other regulations limit the management capabilities of HMOs," she says.

According to Dr. Guggenheim, the California consumer got used to the HMO model and realizes that this is the best choice for low out-of-pocket costs.

"There is something to be said for HMOs in California also being some of the more progressive and having come out earlier with easier access to care," Dr. Guggenheim says.

Mack suggests another reason for California consumers seemingly staying with HMOs. "The delegated model really drove HMO growth initially, and is the reason for high managed care penetration in California," he says. "Managed care companies delegated utilization review and quality assurance from them to providers. Patients identify much more with their doctor and medical group or IPA than with the managed care plan in which they're enrolled."

ENROLLMENT/POPULATION

As has always been the case, enrollment levels remain the highest in largely populated states and highly concentrated urban populations, says Marcotte Stamer. "The demographics of these states within their urban areas are best suited to the successful establishment of an HMO with sufficient enrollment to maintain and provide a full continuum of care at a diverse range of locations.

"California, and the manufacturing states in the Northeast were 'first adopters' of HMO-style arrangements and were—and still remain—in their urban suburban areas, the best suited environments for the HMO model to operate," she says.