Top 10 Managed Care Trends for 2005 and 2006

January 10, 2006

By HealthLeaders-InterStudy analysts, for HealthLeaders News (www.healthleaders.com)

For those who track the ins and outs of health plans, 2005 was anything but boring. The buzz around the new Medicare Part D program, along with Medicare PPO expansion, created the biggest excitement among health plans since the dawn of managed care. Industry consolidation raised questions about who would merge next. At the same time, health plans scrambled to catch up with other industries on technology and quality advances, while the merest hint of consumer power began to ooze into the healthcare system.

Here’s a summary of the HealthLeaders-InterStudy analysis staff’s picks for the biggest stories of 2005–and what promises to catch headlines in 2006.

Number 1

The Biggest Thing Since Sliced Bread

By Paula DeWitt

The year 2006 will mark the biggest change—and biggest free-for-all—to hit the Medicare program since its inception. Hundreds of prescription drug plans are vying for market share, and seniors have much wider choices in health plans. Look for tremendous competition and a dramatic shake-out before the year is over.

For the first time, all Medicare beneficiaries have access to drug benefits through prescription drug plans. There are between 11 and 20 organizations offering prescription drug plans in each of 34 regions. Nine organizations are offering coverage nationwide, including Aetna Life Insurance Co., CIGNA, PacifiCare, WellPoint and UnitedHealthcare.

Besides the drug plans, Medicare in general will come in a variety of flavors, including Medicare Advantage HMOs, PPOs and private-fee-for-service, offered alongside traditional fee-for-service.

On the Medicare Advantage front, Humana is making the most dramatic push. It’s the dominant insurer awarded contracts for the new Medicare Advantage regional PPO program. Of the 26 PPO regions (one- or multi-state), Humana won contracts in 14 regions. The next biggest MA regional players, UnitedHealthcare and WellPoint (through its subsidiaries Anthem and Blue Cross of California) won contracts in three regions. Meanwhile, ?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” /Aetna was awarded contracts in two areas.

Several Blue Cross plans jumped into the Medicare PPO fray, but others chose to sit it out. Five regions have no MA regional plans. Centers for Medicare & Medicaid officials are hoping the regional plans will give more Medicare beneficiaries—even in remote locations—a chance to join a health plan. But many observers still are betting on local plans to be more successful.

Number 2

Is UnitedAetnaCIGNAWellPoint Not Far Behind?

By Rick Byrne

Characterizing 2005 as another year of the big getting bigger in health insurance mergers and acquisitions sells short the distinct turn consolidation took, and fails to foresee where investment dollars will be headed.

The “twin giants,” UnitedHealth Group and WellPoint Inc., certainly continued to grow their market share by buying up existing publicly traded firms. United announced plans to snatch up the Medicare-heavy PacifiCare (which itself had only recently acquired the privately owned multi-state PPO firm American Medical Security), and WellPoint grabbed the only remaining for-profit Blues firm it didn’t already own, WellChoice. The United-PacifiCare and WellPoint-WellChoice deals total more than $14 billion.

However, the most revealing purchases of the year were United’s acquisition of Definity Health and WellPoint’s deal for Lumenos, in both cases a traditional insurer absorbing an innovative dot-com survivor specializing in consumer-driven plans. Both United and WellPoint have said that the consumer-driven plans will continue to operate as separate entities, but made it clear that the influence of these plans would ripple throughout the larger companies.

Other insurers took notice. Indeed, CIGNA prompted four of Definity’s top executives to come aboard shortly after the sale. CIGNA also acquired ChoiceLinx, a small player in the consumer-driven space. Aetna, the third-largest health insurer, continued a go-it-alone approach to building its CDHPs, but grew its network market share with its play for HMS Healthcare, a serious competitor for PPO business in Michigan and Colorado.

What will 2006 hold for mergers and acquisitions? With both CIGNA and Aetna’s balance sheets beefed up, expect more M&A activity from those two, as well as from Coventry Corp., whose last big purchase was of the First Health PPO in late 2004.

Number 3

Who Let The Consumers Out?

By Jane DuBose

The past year may be remembered as the time when health plans put the concept of “consumers” into the consumer-driven movement. But those rascally consumers weren’t all that excited, despite the new and improved health plan Web sites, the transparency in drug and medical-care pricing, and the medical debit cards.

Suffice it to say the consumer-driven movement, which includes the mushrooming health savings accounts and health reimbursement arrangements, is not going away anytime soon. But the movement isn’t exactly exploding, either.

Just 3 percent of the commercial health insurance market was in account-based plans in 2005. That number is likely to take its biggest leap upward in 2006, especially with the likes of UnitedHealth Group and WellPoint Inc. in the game. Paired with high-deductible health plans, the HSAs represent the antithesis of the comfortable copay world to which millions of employees have grown accustomed.

And with many of managed care’s old shackles–such as prior authorization–resting in peace, going from the comfort of first-dollar HMOs to managing their own healthcare dollars in HSAs and HRAs is still not appealing to the masses.

Nevertheless, even the possibility of a movement has banks, IT vendors and consultants foaming at the mouth with the growth potential. Expect more banking tie-ins to the cards, more improvement in the benefit designs, and maybe, just maybe, consumers—and employers—will put their toes in the water.

Number 4

Brother, Can You Spare Premium Dollars?

By Rick Byrne

Bad news continued to accumulate for the uninsured as coverage from the private sector, and to a lesser extent, government sources, became harder to get, tougher to keep and more difficult to afford. Though the federal government’s official tally of the uninsured in America climbed to 45.6 million people, it was not for lack of trying by many parties.

In 2005, the nonprofit HR Policy Association united large, national employers to offer part-time, contractual and seasonal staffers employee-paid, low-cost, low-coverage health plans. In addition, county governments in some states offered three-share plans in which employers, employees and either a government or nonprofit source each paid a third of the premium for small businesses to cover employees with limited benefits.

Though no one derides these efforts, their uptake has been mediocre at best as the sponsors struggle with both their funding and marketing.

On balance, employers offering health benefits continue to disappear, as the Kaiser Family Foundation reported that number went from 69 percent to 60 percent from 2000 to 2004.

Governments offered the most hope for the uninsured through Medicaid expansions, and some states have juggled budgets or levied provider taxes to leverage federal money to cover more people. But governments have contributed to their share of uninsurance, with TennCare’s sloughing off some 190,000 beneficiaries, and Missouri’s shedding of 96,000 the most prominent of cuts in 2005.

The state-run Dirigo Health Agency, pledging to bring universal coverage to Maine, disappointed by failing to reach enrollment goals at a cost many now call too high. The landscape for Medicaid only looks bleaker for 2006, as Congress debates cutting funding to the states.

One 2006 bright spot may be in Illinois, where Gov. Rod Blagojevich is launching an ambitious program to insure all of the state’s 250,000 children in a primary-care case-management program.

Number 5

Medicaid+Managed Care: Matches Made in Heaven?

By Paula DeWitt

For the past several years, managed care actually diminished or barely grew in some states. Then in 2005, several states decided managed care might be the answer after all. Three with large low-income populations—Texas, Ohio, and Georgia—stand out from the crowd.

Georgia, which currently has no Medicaid HMO program, will begin phasing in a mandatory program in April 2006. The Georgia Healthy Families program will absorb about 1 million of the state’s 1.2 million Medicaid patients and about 220,000 children currently covered by PeachCare for Kids, the state’s program for uninsured children. The Medicaid patients will be mainly children and women in the Temporary Assistance to Needy Families population (TANF), which includes low-income families and women who are pregnant or are eligible for Medicaid because of cervical or breast cancer. WellCare, Centene’s Peach State Health Plan and AMERIGROUP won the contracts.

Meanwhile, in Texas, thousands of Medicaid beneficiaries are being moved out of fee-for-service to managed care, beginning in July 2006, and the move has attracted a number of national health plans, including Aetna, Molina Healthcare and UniCare. The new contracts cover a large chunk of the Medicaid and CHIP populations–those in urban areas who receive TANF payments or are enrolled in the Children’s Health Insurance Program (CHIP), along with the aged/blind/disabled population (also known as the SSI population) in the Harris County (Houston) area. Texas HMOs will then be accommodating a total of some 992,000 members.

Ohio is adding 185,000 enrollees from the Covered Families and Children segment of its Medicaid program into managed care. These beneficiaries live in eight counties that are large urban centers or in nearby suburban areas where some Medicaid recipients are already enrolled in HMOs. At the same time, the Ohio Department of Jobs and Family Services has procured bids for the statewide expansion of managed care. The eight-county and statewide expansions together will add 625,000 people. Combine that with the current enrollment of 534,000, and the state in less than a year will have more than 1.2 million people in managed care just from the CFC population. Additionally, by February or March 2006, the state will seek bids for health plans that want to insure the some 125,000 Medicaid beneficiaries who are aged, blind and disabled.

Number 6

Making Electronic Medical Records Mobile

By Jan Shuxteau

If the healthcare industry was an automobile, it would be a racecar, rushing to catch up with the rest of the business world in terms of technology. But for too long, the industry was a sedate sedan cruising along a highway, zigzagging around the roadblocks of company policies, cost, training, competition and politics that hindered technological advances in recordkeeping, information sharing and communication.

And patient safety suffered most. An estimated 98,000 Americans die each year as a result of medical errors, and almost that many succumb to infections they acquire in hospitals. This information, compiled six years ago by a Medical Institute groundbreaking study, fueled the rush to dramatic change in the industry. Moving to electronic medical records, with their built-in alerts, instantaneous resources and methodology, reduces human error, which in turn saves lives and reduces liability. Plus, EMRs are convenient, smart, and reduce costs.

These are all things that insurers love and want their providers to love, too. With a clever mix of carrots and sticks—mostly carrots—insurers nationwide are doing their part to draw docs and health executives into the fast lane of technology. Some hospital systems have joined wholeheartedly in the effort, pushing doctors to go digital for the first time.

Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals are investing upwards of $3.2 billion on a new information technology system dubbed KP HealthConnect.

Blue Cross and Blue Shield of Massachusetts launched a $50 million experiment this year to fully computerize patient records in healthcare markets in parts of the state—only one of many projects nationwide.

Aurora Health Care is spending close to $163 million as part of a long-term IT upgrade to provide a common electronic medical record and supporting data-entry devices across its 14 member hospitals and scores of clinics in Wisconsin.

Virginia’s Anthem Blue Cross and Blue Shield in Virginia’s Quality-In-Sights Hospital Incentive Program (Q-HIP) gives hospitals cash rewards for meeting quality goals—many digitally based—and has become a model for similar Blues programs throughout the nation, including programs that recently began in Connecticut, New Hampshire and Maine.

And with the Institute of Medicine reporting that medical errors cost the nation about $37.6 billion annually, the federal government is willing to dangle its own carrot in front of the healthcare industry. In an unprecedented move, Medicare is giving doctors free software to computerize their medical practices.

Number 7

Honey, I Shrunk the HMO Numbers

By Jane DuBose

Even the industry doesn’t like the HMO phrase these days, so it’s no wonder the incredible HMO shrinking act kicked into a new gear in 2005. And there’s nothing to indicate a reversal in 2006.

HMO enrollment dropped precipitously in large states known for union and employer support of the benefit design. Pennsylvania, for example, saw a nearly 15 percentage-point plummet in the market share enjoyed by HMOs in 2005, according to HealthLeaders-InterStudy. HMOs also lost significant market share in Ohio, Florida and Missouri.

The exodus was speeded up by the move among employers to self-insure. “As companies look to save money, they are turning to self insuring,” said Jeffrey Wise, vice president of Aon Consulting in Pennsylvania. “When they do that, they often leave the HMO behind.”

In addition, large insurers such as UnitedHealthcare, which rely on national accounts, aren’t that enamored of HMOs because they confine employers to state health benefits mandates and make it more difficult for multi-state accounts. CIGNA HealthCare says only 10 percent of its 9 million medical members are in HMOs.

In states where HMO enrollment was never really large, it sank to new lows. Just over 16 percent of the commercial-insurance market was enrolled in an HMO or point-of-service design in North Carolina, while it sunk to 15 percent in Tennessee.

Nevertheless, there were pockets of trend-bucking. HMOs in Massachusetts, for example, enjoyed a whopping 68 percent market share in that state’s commercial market with about 100,000 people joining HMOs in 2005. In Michigan, where unions feed HMO membership, there was little, if any, erosion in HMO membership.

Number 8

Disease Management Grows Up

By Micaela Brown

Disease management is growing out of its traditional role and treating new chronic conditions, from commonplace back pain to rare disorders like Gaucher disease. Programs are not just a phone call from a nurse anymore; now they can coordinate care among several providers and help patients tap into all their resources. Just as important, Medicare is investing in companies to develop new and improved programs for seniors and dual-eligibles.

The five most common conditions covered in an average disease-management program are asthma, coronary artery disease, chronic obstructive pulmonary disease, congestive heart failure and diabetes. But insurers like Philadelphia-based Independence Blue Cross have expanded their program to include complex chronic conditions such as hemophilia, scleroderma and multiple sclerosis. While these illnesses may be rare, they are complicated, expensive to treat and can be more costly if untreated.

More common ailments, such as back pain, depression and obesity, are also increasingly a target for disease management. Blue Cross and Blue Shield of North Carolina became one of the first insurers in the country to develop a comprehensive obesity program, and it added dieticians to its contracted network with the idea of reimbursing members for weight-loss sessions.

Disease-management programs are also becoming more comprehensive. IBC’s expanded program, for example, coordinates patient care with provider specialists and its specialty pharmacy.

Look for continued focus on targeted disease management from employers, health plans, and the nation’s largest payor, Medicare, which is sponsoring pilot projects to improve care for chronically ill members.

Number 9

One By One By One

By Don Mooradian

With growth in the group insurance market trickling to a drip, the industry began looking for another avenue–and it found it with individual insurance plans. They are increasingly targeted to self-employed entrepreneurs, students, recent college graduates, early retirees and people between jobs.

The U.S. Census Bureau reported that 9.3 percent of people with private health insurance in 2004 had purchased it directly, up slightly from 9.2 percent in 2003.

Individual insurance designs ran the gamut, from HMOs to PPOs and point-of-service to traditional fee-for-service. The most popular plans have basic benefits without the bells and whistles associated with group plans.

Humana Inc., which launched HumanaOne for individuals in June 2002, passed the 100,000-enrollee mark last fall in the 15 states where it’s offered. Likewise, Anthem Blue Cross and Blue Shield said it has nearly 400,000 members in individual policies just in Ohio, Kentucky and Indiana.

Coupled with recent announcements of massive layoffs in the automotive industry and anticipated slowdowns in other sectors, such as housing, there will likely be continued demand for health insurance for individuals in 2006 and beyond.

Number 10

Paying For Performance–Will It Pay Off?

By Sheri Sellmeyer

Paying extra for superior performance would appear to be a no-brainer, but in the complex world of insurer-physician relations, it’s not that simple. Health plans around the country have begun pay-for-performance programs to encourage providers to use evidence-based protocols, use electronic medical records and meet general quality standards.

2006 will be a critical year for measuring return on investment for pay-for-performance programs now that some have several years of data to evaluate.

Across the country, health plans point to successes while skeptical physicians say evidence-based medicine is a ploy to encourage the cheapest form of diagnosis and treatment. Among the P4P programs:

Health plans in the Integrated Healthcare Association, a California-based coalition of health plans, physicians and others, have seen improvement across the board in quality measures such as breast cancer screening, cholesterol management and diabetes screening and management.

Blue Cross Blue Shield of Michigan says its hospital-based incentive program has decreased rates of life-threatening infections by 45 percent for patients in the intensive care unit.

Anthem Blue Cross and Blue Shield in southern Ohio says its P4P program helped increase preventive measures among asthmatic members from 28 percent in 2003 to 84 percent at year-end 2004. And Anthem has paid out $6 million to hospitals in Virginia for meeting performance goals regarding patient safety and health outcomes.

Those kinds of results get everyone’s attention. Bottom line, pay-for-performance will be an integral part of health plans’ strategy if they show improved medical results and a solid return on investment in the long term.

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